Chapter 2- Conceptual Framework

Question 1

Second level of the conceptual framework does what

Answer 1

1. Provides building blocks that explain qualitative characteristics of accounting information
2. Define the elements of financial statements.

Question 2

Qualitative characteristics made up of tow qualities

Answer 2

1) Fundamental qualities

2) Enhancing quantities

Question 3

Two things make up fundamental qualities

Answer 3

1. Relevance

2. Faithful Representation

Question 4

Accounting information must be capable of making a difference in a decision. This is know as

Answer 4

Relevance

Question 5

The three ingredients that determine the relevance of something are

Answer 5

1. Predictive value
2. Confirmatory value
3. Materiality

Question 6

Financial information that has value as an input into predictive processes used by investors to form their own expectations about the future

Answer 6

Predictive value

Question 7

Relevant information that helps users confirm or correct prior expectations

Answer 7

Confirmatory value

Question 8

Company specific aspect of relevance that if omitted or misstated could influence decisions that users make on the basis of reported financial information. The information must make a difference in order for it to be reported and it requires evaluating both the relative size and importance of an item

Answer 8

Materiality

Question 9

The second fundamental quality

Answer 9

Faithful representation

Question 10

This means that the numbers and descriptions match what really existed or happened

Answer 10

Faithful representation

Question 11

Faithful representation has three ingredients

Answer 11

1. Completeness
2. Neutrality
3. Free from error

Question 12

This means that all the information necessary for faithful representation is provided, and an omission of this information can be false or misleading.

Answer 12

Completeness

Question 13

This means that a company cannot select information to favor one set to f interested parties over another. Unbiased information

Answer 13

Neutrality

Question 14

Provide a more accurate and faithful representation of a financial item if it is

Answer 14

Free from error

Question 15

The second type of qualitative characteristic that is complementary to the fundamental qualitative characteristics

Answer 15

Enchanting qualities

Question 16

Enhancing qualities are broken down into four characteristics

Answer 16

1. Comparability
2. Verifiability
3. Timeliness
4. Understandability

Question 17

Information that is measured and reordered in a similar manner for different companies; enables issued to identify the real similarities and differences in economic events between companies

Answer 17

Comparability

Question 18

This occurs when independent measurers, using the same methods, obtain similar results

Answer 18

Verifiability

Question 19

This means having information available to decision makers before it loses its capacity to influence decisions

Answer 19

Timeliness

Question 20

The connection between the users and the decisions they make; the quality of information that lets reasonably informed users see its significance

Answer 20

Understandability

Question 21

There are 10 basic elements of financial statements

Answer 21

1. Assets
2. Liabilities
3. Equity
4. Comprehensive Income
5. Investments by owner
6. Distributions to owners
7. Revenues
8. Expenses
9. Gains
10. Losses

Question 22

Probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events

Answer 22

Asset

Question 23

Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of pastor transactions or events

Answer 23

Liabilities

Question 24

Residual interest in the assets of an entity that remains after deducting its liabilities. In a business enterprise, this is the ownership interest

Answer 24

Equity

Question 25

Increases in net assets of a particular enterprise resulting from transfers to it from other entities of something of value to obtain or increase equity in it.

Answer 25

Investments by owners

Question 26

Decreases in net assets of a particular enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners. This decreases equity

Answer 26

Distributions to owners

Question 27

Change in equity of an entity during a period from transactions and other events and circumstances from nonowner sources. Includes all chances in equity during a period except those resulting from investments by owners and distributions from owners

Answer 27

Comprehensive Income

Question 28

Inflows or other enhancements of assets of an entity or settlement of its liabilities, or a combination of both, during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations

Answer 28

Revenues

Question 29

Outflows or other using up of assets in incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations

Answer 29

Expenses

Question 30

Increases in equity from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during s period except those that result from revenues or investments by owners

Answer 30

Gains

Question 31

Decreases in equity from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from expenses and distribution to owners

Answer 31

Losses