ch 1 vocab

Question 1

Comparability

Answer 1

Information that is measured and reported in a similar manner for different companies

Question 2

Completeness

Answer 2

all the information that is necessary for faithful representation is provided.

Question 3

Confirmatory Value

Answer 3

it helps users confirm or correct prior expectations

Question 4

Cost constraint

Answer 4

weigh the costs of providing the information against the benefits that can be derived from using it.

Question 5

Economic entity assumption

Answer 5

a company’s financial activities are treated as separate from its owners and other businesses

Question 6

Expense recognition principle

Answer 6

Companies recognize expenses not when they pay wages or make a product, but when the work (service) or the product actually contributes to revenue.

Question 7

Expenses

Answer 7

outflows or other “using up” of assets or incurring of liabilities during a period as a result of delivering or producing goods and/or performing services

Question 8

Faithful Representation

Answer 8

information must be complete, neutral, and free of error.

Question 9

Free from error

Answer 9

information is accurate and not misleading, though it may still involve reasonable estimates and judgments, like in calculating bad debts or depreciation.

Question 10

Full disclosure principle

Answer 10

requires companies to share all important information that could influence decisions, balancing detail and clarity. This information appears in financial statements, notes, or supplementary sections, but it doesn’t replace proper accounting practices.

Question 11

Going concern assumption

Answer 11

a company is expected to continue operating for the foreseeable future, so normal accounting rules (GAAP) apply.

Question 12

Historical cost principle

Answer 12

companies record assets and liabilities at their original purchase price.

Question 13

Materiality

Answer 13

If leaving it out or misstating it could influence users’ choices, it is considered material. Determining materiality involves judging the size and significance of an item.

Question 14

Monetary unit assumption

Answer 14

money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis.

Question 15

Neutrality

Answer 15

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

Question 16

Periodicity assumption

Answer 16

a company can divide its economic activities into artificial time periods. These time periods vary, but the most common are monthly, quarterly, and yearly.

Question 17

Predictive Value

Answer 17

if it helps users form their own expectations about the future.

Question 18

Relevance

Answer 18

Financial information is considered relevant when it is material and has predictive value, confirmatory value, or both. Information with no bearing on a decision is irrelevant.

Question 19

Revenue recognition principle

Answer 19

companies recognize revenue in the accounting period in which the service is complete

Question 20

Timeliness

Answer 20

having information available to decision-makers before it loses its capacity to influence decisions.

Question 21

Verifiability

Answer 21

when independent measurers, using the same methods, obtain similar results.