Chapter 3 Flashcards
Accounting information system
The system of collecting and processing transaction data and communicating financial information to decision-makers. (p. 84).
Accounting transactions
Events that require recording in the financial statements because they affect assets, liabilities, or stockholders’ equity. (p. 85).
Comparability
Ability to compare the accounting information of different companies because they use the same accounting principles. (p. 81).
Consistency
Use of the same accounting principles and methods from year to year within a company. (p. 81).
Cost constraint
Constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available.
Economic entity assumption
An assumption that every economic entity can be separately identified and accounted for.
Fair value principle
Accounting principle that states that assets and liabilities should be reported at fair value (the
price received to sell an asset or settle a liability).
Faithful representation
Information that is complete,
neutral, and free from error.
Financial Accounting Standards Board (FASB)
The primary accounting standard-setting body in the United States.
Generally accepted accounting principles (GAAP)
A set of accounting standards that have substantial authoritative support and which guide accounting professionals.
Going concern assumption
The assumption that the company will continue in operation for the foreseeable future.
Historical cost principle
Accounting principle that states that companies should record assets at their cost
International Accounting Standards Board (IASB)
An accounting standard-setting body that issues standards adopted by many countries outside of the United States.
International Financial Reporting Standards (IFRS)
Accounting standards, issued by the IASB, that have been adopted by many countries outside of the United States.
Materiality
Whether an item is large enough to likely infl
uence the decision of an investor or creditor.
Monetary unit assumption
An assumption that requires that only those things that can be expressed in money are included in the accounting records.
Periodicity assumption
An assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared
for the business.
Public Company Accounting Oversight Board (PCAOB)
The group charged with determining auditing standards and reviewing the performance of auditing firms.
Relevance
The quality of information that indicates the
information makes a difference in a decision.
Securities and Exchange Commission (SEC)
The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies.
Timely
Information that is available to decision-makers before it loses its capacity to influence decisions.
Understandability
Information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning.
Verifiable
The quality of information that occurs when independent observers, using the same methods, obtain similar results.
