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