Ch 11 Financial Reporting Concepts Flashcards

1
Q

accrual basis of accounting

A

The method of accounting where revenues are recorded in the period when the transaction occurs and not when cash is received or paid. (p. 592)

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2
Q

comparability

A

An enhancing qualitative characteristic that financial information has if it can be compared with the financial information of other companies because the companies all use the same accounting principles. (p. 589)

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3
Q

complete

A

The characteristic of financial information when it provides all information necessary to show the economic reality of the transactions. Completeness is part of the faithful representation fundamental qualitative characteristic of financial information. (p. 588)

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4
Q

conceptual framework of accounting

A

A coherent system of interrelated elements that guides the development and application of accounting principles: it includes the objective of financial reporting, elements of financial statements, qualitative characteristics of financial information, recognition and measurement criteria, and foundational concepts, assumptions and constraints. (p. 584)

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5
Q

consistency

A

The use of the same accounting policies from year to year. Consistency is part of the comparability enhancing qualitative characteristic of financial information. (p. 589)

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6
Q

contract

A

An agreement between two or more parties that creates enforceable rights and obligations. (p. 594)

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7
Q

cost constraint

A

The constraint that the costs of obtaining and providing information should not be more than the benefits that are gained. (p. 608)

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8
Q

current cost

A

A measurement method that measures an asset at the amount of cash or equivalent that would have to be paid if the same or an equivalent asset had to be purchased in the current period. This is sometimes referred to as “replacement cost.” Liabilities measured at current cost reflect the amount required to settle an obligation currently. (p. 603)

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9
Q

elements of financial statements

A
The basic categories in financial statements:
assets
liabilities
equity
revenue
expenses

(p. 586)

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10
Q

expense recognition criteria

A

The criteria that state that expenses should be recognized when there is a decrease in an asset or increase in a liability, excluding transactions with owners that result in a decrease in owners’ equity. (p. 602)

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11
Q

faithful representation

A

A fundamental qualitative characteristic of financial information that shows the economic reality of a transaction and not just its legal form. (p. 588)

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12
Q

full disclosure

A

The accounting concept that recognizes that financial statement information must be complete and requires the disclosure of circumstances and events that make a difference to financial statement users. (p. 607)

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13
Q

going concern assumption

A

The assumption that the company will continue operating for the foreseeable future, that is, long enough to meet its current objectives and carry out its current commitments. (p. 607)

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14
Q

historical cost

A

An accounting concept that states that assets should be recorded at their historical (original) cost. (p. 603)

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15
Q

material error

A

An error in the financial information that could impact an investor’s or creditor’s decision. (p. 589)

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16
Q

materiality

A

An important concept of relevance in which an items is considered material if it is likely to influence the decision of reasonably careful investor or creditor. (p. 588)

17
Q

neutral

A

The characteristic of financial information when it is free from bias that is intended to attain a predetermined result or to encourage a particular behaviour. Neutrality is part of the faithful representation fundamental qualitative characteristic of financial information. (p. 588)

18
Q

objective of financial reporting

A

The goal of providing useful information for investors and creditors in making decisions in their capacity as capital providers. (p. 585)

19
Q

performance obligation

A

In a contract with a customer, this is an obligation to provide goods or services to another party. (p. 594)

20
Q

present value

A

A measurement method that measures assets and liabilities at the present value of future cash inflows or outflows. (p. 603)

21
Q

prudence

A

Guidance expected to be included in the revised conceptual framework to exercise caution in situations of uncertainty. Prudence is closely related to neutrality. (p. 588)

22
Q

realizable value

A

A measurement method that measures assets at the amount of cash or equivalent that could currently be obtained by selling the asset in an orderly disposal. Liabilities measured at realizable value report the cash expected to be paid to satisfy the liabilities in the normal course of business. Realizable value also encompasses fair value. (p. 603)

23
Q

relevance

A

A fundamental qualitative characteristic that financial information has if it makes a difference in a decision. The information should have predictive and feedback value and be material. (p. 588)

24
Q

reporting entity concept

A

This foundation concept requires that the accounting for a reporting entity’s activities be kept separate and distinct from the accounting for the activities of its owner and all other reporting entities. (p. 606)

25
Q

revenue recognition criteria

A

The criteria that state that revenue should be recognized when there is an increase in assets or decrease in liabilities from profit-generating activities. (p. 593)

26
Q

stand-alone selling price

A

The fair value of what a good or service would sell for on its own. (p. 594)

27
Q

stewardship

A

The ability of management to acquire and use a company’s resources in the best possible way. (p. 586)

28
Q

timeliness

A

An enhancing qualitative characteristic that financial information has if it is provided when it is still highly useful to decision makers. (p. 589)

29
Q

transaction price

A

The amount a business expects to receive in exchange for the goods and services promised to the other party. (p. 594)

30
Q

understandability

A

An enhancing qualitative characteristic of financial information that enables reasonably informed users to interpret and comprehend the meaning of the information provided in the financial statements. Understandability is greater when the information is classified, characterized, and presented clearly and concisely. (p. 590)

31
Q

verifiability

A

An enhancing qualitative characteristic of financial information that assures users that the information shows the economic reality of the transaction. (p. 589)