Defintions Flashcards

1
Q

Relevance

A

fundamental quality: Accounting data capable of making a difference in a decision is reported

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2
Q

Faithful representation

A

fundamental quality: JE/numbers reflect what truly existed or happened

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3
Q

Predictive value

A

ingredient to relevance: helps users form own expectations about future

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4
Q

Confirmatory value

A

ingredient to relevance: helps users confirm or correct prior expectations

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5
Q

materiality

A

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.

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6
Q

Completeness

A

ingredient to faithful rep.: all the information that is necessary for faithful representation is provided

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7
Q

Neutrality

A

ingredient to faithful rep.: company cannot select information to favor one set of interested parties over another.

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8
Q

Free from error

A

ingredient to faithful rep.: An information item that is free from error will be a more accurate (faithful) representation of a financial item.

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9
Q

Comparability

A

relevance enhancing quality: a company consistently uses same accounting principles as in prior years

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10
Q

Verifiability:

A

relevance enhancing quality: occurs when independent measurers, using the same methods, obtain similar results

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11
Q

Timeliness

A

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

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12
Q

Understandability:

A

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.

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13
Q

Economic Entity Assumption

A

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

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14
Q

Going Concern Assumption

A

assume company will have long life

ex/ depreciation policies correctly assume the company will have a long life

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15
Q

Monetary Assumption

A

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

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16
Q

Periodicity Assumption

A

a company can divide its economic activities into artificial time periods.

ex/ companies may produce monthly financial reports

17
Q

Measurement Principle

A

transactions need to be described as numbers with a certain degree of certainty before they can be journalized

historical cost or fair value

18
Q

Revenue recognition Principle

A

Revenue is recognized as performance obligations are satisfied (accrual basis)

19
Q

Expense recognition Principle

A

expenses match with revenues in the period they are satisfied (accrual)

ex/ accruing salaries earned by employees even though they have not yet been paid

20
Q

Full disclosure Principle

A

recognizes that the nature and amount of information included in financial reports reflects a series of judgmental trade-offs

ex/ footnotes, sufficient details

21
Q

Cost constraint

A

companies must weigh the costs of providing the information against the benefits that can be derived from using it.

companies don’t want to disclose too much info cause other companies will steal it
ex/ Research and development expense

22
Q

Primary objective of financial reporting is

A

provide financial info that is useful to present and potential to investors, lendors, and creditors in making decisions

23
Q

underlying theme of conceptual framework is

A

usefulness for decision making

24
Q

a general journal…

A

chronologically lists transactions and other events, expressed in terms debits and credits

25
Q

Long term operating assets are capitalized when acquired and then depreciated or amortized over subsequent account cycles to…

A

match expenses with revenues from the assets as they are earned

26
Q
A