ch 2 accounting

Different companies use the same accounting principles.

comparability

faithful representation consists of

complete, neutral, free from error

A company's use of the same accounting principles from year to year.

consistency

Enhancing qualities consist of

consistency, comparability, verifiability, timeliness, understandability

The cost to provide information should be weighed against the benefit that users will gain from having the information available.

cosy constraint

Indicates that personal and business record-keeping should be separately maintained.

economic entity assumption

Personal transactions are not mixed with the company's transactions.

economic entity assumption

The president of Lopez Co., Victor Lopez, purchased a truck for personal use and charged it to his expense account.

economic entity assumption

Accounting information must be complete, neutral, and free from error.

faithful representation

Substantial authoritative support for GAAP usually comes from two standards-setting bodies: the FASB and the IRS.

false

Substantial authoritative support for GAAP usually comes from two standards-setting bodies: the FASB and the IRS.

financial statements should disclose all events and circumstances that would matter to users of financial statements.

Dictates that companies should disclose all circumstances and events that make a difference to financial statement users.

full disclosure principle

The reporting of all information that would make a difference to financial statement users.

full disclosure principle

Assumes a business will remain in operation for the foreseeable future.

going concern assumption

Is the rationale for why plant assets are not reported at liquidation value. (Note: Do not use the historical cost principle.)

going concern assumption

Assets are recorded and reported at original purchase price.

historic cost principle

Measurement basis used when a reliable estimate of fair value is not available.

historical cost principle

Reported at its fair value of $260,000 merchandise inventory with a cost of $208,000.

historical cost principle

The judgment concerning whether an item's size makes it likely to influence a decision-maker.

materiality

Assumes that the dollar is the "measuring stick" used to report on financial performance.

monetary unit assumption

Items not easily quantified in dollar terms are not reported in the financial statements.

monetary unit assumption

Accounting information cannot be selected, prepared, or presented to favor one set of interested users over another.

neutral

Lopez Co. wanted to make its 2017 income look better, so it added 2 more weeks to its income statement reporting period (a 54-week year). Previous years were 52 weeks.

periodicity assumption

Separates financial information into time periods for reporting purposes.

periodicity assumption

The life of a business can be divided into artificial segments of time.

periodicity assumption

Accounting information should help provide accurate expectations about future events.

predictive value

Accounting information should help users predict future events, and should confirm or correct prior expectations.

relevance

Fundamental qualities consist of

relevance, predictive value, confirmatory value, materiality,

Accounting information must be available to decision-makers before it loses its capacity to influence their decisions.

timely

GAAP is a set of rules and practices established by accounting standard-setting bodies to serve as a general guide for financial reporting purposes.

true

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

verifiable