ch 1 accuity vocab

Question 1

Objective

Answer 1

Provide useful financial information to help external parties decide whether or not to give a company money

Question 2

Constraint: Cost

Answer 2

The benefit of providing information to shareholders must outweigh the cost to obtain that information

Question 3

Pervasive criterion: Decision-Usefulness

Answer 3

Does this action/information enhance investors ability to make
educated decisions?

Question 4

Fundamental Quality: Relevance

Answer 4

considered relevant when it is material and has predictive and/or confirmatory value

Question 5

Ingredient: Materiality

Answer 5

Information is considered material if it would have an impact on a decisionmaker.

Question 6

Ingredient: Predictive Value

Answer 6

Information has predictive value if it helps users form expectations about the future.

Question 7

Ingredient: Confirmatory Value

Answer 7

Informaton has confirmatory value if it helps users confirm or correct prior expectations.

Question 8

Fundamental Quality: Faithful Representation

Answer 8

The financial statements match what actually happened.

Question 9

Ingredient: Completeness

Answer 9

All information necessary for faithful representation is provided.

Question 10

Ingredient: Neutrality

Answer 10

A company cannot select information to favor one set of interested parties over another

Question 11

Ingredient: Free From Error

Answer 11

For financial statements to be an accurate representation of a company, they must be free from (material) error.

Question 12

Enhancing Quality: Comparability

Answer 12

Users should be able to compare financial information between different companies in the same industry

Question 13

Enhancing Quality: Verifiability

Answer 13

Independent measures (auditors) obtain similar results to the the company, using the same accounting methods.

Question 14

Enhancing Quality: Timeliness

Answer 14

Information is available to users before it loses its capacity to influence decisions.

Question 15

Enhancing Quality: Understandability

Answer 15

Someone with a reasonable business
knowledge can understand the information presented

Question 16

Basic Assumption: Economic Entity

Answer 16

A company keeps its activities clearly seperate from its owners and any other business units.

Question 17

Basic Assumption: Going Concern

Answer 17

Assumes that the company will have a long life and business will continue as usual.

Question 18

Basic Assumption: Monetary Unit

Answer 18

The currency that the company uses (i.e. the US dollar), is relevant, simple, universally available, understandable, and useful

Question 19

Basic Assumption: Periodicity

Answer 19

Implies that a company can divide its activities into time periods

Question 20

Historical Cost Principle

Answer 20

• The original price paid for the asset/liability
• Provides a verifiable benchmark for recording historical trends
• Assets such as Property, Plant, & Equipment are typically recorded at historical cost

Question 21

Fair Value Principle:

Answer 21

• Essentially what you could get for an asset/liability if you sold it.
• Market-based measure, not easily verifiable.
• Assets such as stock market investments are typically recorded at historical cost

Question 22

Basic Principle: Full Disclosure

Answer 22

Include enough detail to disclose matters that will make a difference to users
Condense (summarize) the information enough to make it understandable, while also keeping in mind the cost of doing so

Question 23

Basic Principle: Revenue Recognition

Answer 23

Recognize revenue when the Goods are delivered to the buyer and Services are performed for the customer

Question 24

Basic Principle: Expense Recognition

Answer 24

Recognize expenses when revenue is recognized
Recognize expenses in the period they are incurred (work is performed or service used).