Chapter 2 Flashcards
Qualitative Characteristics
- Understandability
- Relevance
- Faithful Representation
- Comparability
- Consistency
- Verifiability
- Timeliness
- Materiality
Understandability
information should be comprehensible to those who are willing to spend the time to understand it
Relevance
information makes a difference in decision making
Faithful Representation
Information is complete, neutral, free from error
Comparability
allows users to analyze two or more companies and look for similarities or differences, can compare to other companies because similar methods have been supplied
Consistency
allows comparison within a company from one accounting period to the next
Verifiability
independent parties can agree upon measurment
Timeliness
Info is presented in a timely manner while it is still relevant
Materiality
the dollar magnitude of a transaction makes a difference in how it is recorded
economic entity
business transactions are separate from the personal transactions of the owners
Going- Concern
company will continue to operate into the foreseeable future without forced liquidation
Monetary Unit
all information will me measured in its monetary currency
Time Period Assumption
the long life of a company can be reported over a series of shorter time periods, makes it possible to prepare an income statement for a specific time period
Historical Cost Principle (Cost Principle)
assets are recorded at original cost, recorded at the amount we paid
Conservatism Principle
never want to overstate assets or revenues or understate liabilities or expenses
Rules of debits and credits
debits on the left, credits on the right, for each individual transaction debits = credits
Assets
increase an asset with a debit
decrease an asset with a credit
Liability
Increase a Liability with a credit
Decrease a liability with a debit
Stockholders Equity
increase equity with a credit
decrease equity with a debit
Revenue
increase revenue with a credit
decrease revenue with a debit
Expense
increase an expense with a debit
decrease an expense with a credit
Ending balance
end balance = total debits - total credits or total credits - total debits
DEAD
Debits increase Expenses, Assets, and Dividends
CLEAR
Credits increase Liabilities, Equity, And Revenue
