Defintions Flashcards
Relevance
fundamental quality: Accounting data capable of making a difference in a decision is reported
Faithful representation
fundamental quality: JE/numbers reflect what truly existed or happened
Predictive value
ingredient to relevance: helps users form own expectations about future
Confirmatory value
ingredient to relevance: helps users confirm or correct prior expectations
materiality
ingredient to relevance: Information is material if omitting it or misstating it would influence decisions that users make on the basis of the reported financial information.
Completeness
ingredient to faithful rep.: all the information that is necessary for faithful representation is provided
Neutrality
ingredient to faithful rep.: company cannot select information to favor one set of interested parties over another.
Free from error
ingredient to faithful rep.: An information item that is free from error will be a more accurate (faithful) representation of a financial item.
Comparability
relevance enhancing quality: a company consistently uses same accounting principles as in prior years
Verifiability:
relevance enhancing quality: occurs when independent measurers, using the same methods, obtain similar results
Timeliness
faithful representation enhancing quality: having information available to decision-makers before it loses its capacity to influence decisions. Having relevant information available sooner can enhance its capacity to influence decisions
Understandability:
faithful representation enhancing quality: the quality of information that lets reasonably informed users see its significance. Understandability is enhanced when information is classified, characterized, and presented clearly and concisely.
Economic Entity Assumption
means that economic activity can be identified with a particular unit of accountability; business is separate from owner and other parties
ex/ transactions of only the business are reported in financial statements
Going Concern Assumption
assume company will have long life
ex/ depreciation policies correctly assume the company will have a long life
Monetary Assumption
means that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis.
ex/ transactions need to be expressed in dollars