Chapter 3 Flashcards
Generally accepted accounting principles (GAAP)
Set of rules and practices having substantial authoritative support that companies use to determine
What info to disclose, what format to use and how it should measure A,L,R,E
According the FASB, useful information should possess two fundamental qualities
Relevance and faithful representation
Relevance
Provides info that has a predictive value, has confirmatory value
Materiality
Company specific aspect, item is material when its size makes it likely to influence the decision of an investor creditor
Faithful representation means information must be…
Complete, neutral, free from error
5 enhancing qualities of information
Comparability, verifiable, understandability, consistency and timely
Monetary unit assumption
Require that only those things that can be expressed in money are included in the accounting records
Economic entity assumption
States every economic entity can be separately identified and accounted for
Periodicity assumption
Life of a business can be divided into artificial time periods
Going concern assumption
Business will keep operating for foreseeable future
Historical cost
Cost principle, dictates companies record assets at cost
Fair value
Indicates that assets and liabilities should be reported at fair value
Full disclosure principle
Disclose all circumstances and events that would make a difference to financial statement users
Cost contstraint
Cost companies will incur to provide financial information vs benefit user will have from having the info available
Accounting information system is a system of…
Collecting, processing and communicating
