Chapter 3

Question 1

Accounting information system

Answer 1

The system of collecting and processing transaction data and communicating financial information to decision-makers. (p. 84).

Question 2

Accounting transactions

Answer 2

Events that require recording in the financial statements because they affect assets, liabilities, or stockholders’ equity. (p. 85).

Question 3

Comparability

Answer 3

Ability to compare the accounting information of different companies because they use the same accounting principles. (p. 81).

Question 4

Consistency

Answer 4

Use of the same accounting principles and methods from year to year within a company. (p. 81).

Question 5

Cost constraint

Answer 5

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.

Question 6

Economic entity assumption

Answer 6

An assumption that every economic entity can be separately identified and accounted for.

Question 7

Fair value principle

Answer 7

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).

Question 8

Faithful representation

Answer 8

Information that is complete,

neutral, and free from error.

Question 9

Financial Accounting Standards Board (FASB)

Answer 9

The primary accounting standard-setting body in the United States.

Question 10

Generally accepted accounting principles (GAAP)

Answer 10

A set of accounting standards that have substantial authoritative support and which guide accounting professionals.

Question 11

Going concern assumption

Answer 11

The assumption that the company will continue in operation for the foreseeable future.

Question 12

Historical cost principle

Answer 12

Accounting principle that states that companies should record assets at their cost

Question 13

International Accounting Standards Board (IASB)

Answer 13

An accounting standard-setting body that issues standards adopted by many countries outside of the United States.

Question 14

International Financial Reporting Standards (IFRS)

Answer 14

Accounting standards, issued by the IASB, that have been adopted by many countries outside of the United States.

Question 15

Materiality

Answer 15

Whether an item is large enough to likely infl

uence the decision of an investor or creditor.

Question 16

Monetary unit assumption

Answer 16

An assumption that requires that only those things that can be expressed in money are included in the accounting records.

Question 17

Periodicity assumption

Answer 17

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.

Question 18

Public Company Accounting Oversight Board (PCAOB)

Answer 18

The group charged with determining auditing standards and reviewing the performance of auditing firms.

Question 19

Relevance

Answer 19

The quality of information that indicates the

information makes a difference in a decision.

Question 20

Securities and Exchange Commission (SEC)

Answer 20

The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies.

Question 21

Timely

Answer 21

Information that is available to decision-makers before it loses its capacity to influence decisions.

Question 22

Understandability

Answer 22

Information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning.

Question 23

Verifiable

Answer 23

The quality of information that occurs when independent observers, using the same methods, obtain similar results.