Chp 2 ACCT

Comparability

Qualitative characteristic being employed when companies in the SAME INDUSTRY are using the same accounting principles

Feedback value

Quality of information that confirms users EARLIER expectations.

Consistency

Imperative for providing COMPARISONS of a company from PERIOD TO PERIOD

Neutrality

IGNORES the economic consequences of a STANDARD or RULE

Verifiability

Requires a high degree of CONSENSUS among individuals on a given measurement

Relevance

PREDICTIVE VALUE is an ingredient of this primary quality of information

Comparability and Consistency

Two qualitative characteristics that are RELATED to both relevance and reliability

Reliability

Neutrality is an INGREDIENT of this primary quality of accounting information.

Relevance and Reliability

Two primary qualities that make accounting information useful for DECISION MAKING purposes.

Timeliness

ISSUANCE of interim reports is an example of what primary ingredient of relevance?

Gains and Losses

ARISES from peripheral or incidental transactions

Liability

OBLIGATION to transfer resources arising from past transaction

Investment by owner, comprehensive income, revenue, gains

INCREASES ownership interest.

Distribution to owner

Declares and pays cash DIVIDENDS to owners

Comprehensive income, revenue, gains

Increases in net assets in a period from NON-OWNER sources.

Asset

Items characterized by SERVICE potential or future economic BENEFIT.

Comprehensive income

Equals INCREASE ASSETS LESS LIABILITIES during the year, after adding distributions to owners and subtracting investments by owners.

Revenues and expenses

Arises from income statement activities that constitute the entities ON GOING major or central operations.

Equity

RESIDUAL INTEREST in the assets of the enterprise after deducting its liabilities.

Revenue

Increases assets during a period through SALE of product.

Distribution to owners

Decreases assets during the period by purchasing the company’s OWN stock.

Comprehensive income

Includes all changes in equity during the period, except those resulting from investments by OWNERS and distributions to OWNERS.

Expense Recognition Principle

Allocates Expenses to Revenues in proper period.

Historical cost

Indicates that fair value changes BEFORE purchase are not recorded in the accounts.

Full Disclosure principle

Ensures are RELEVANT financial information is reported.

Conservatism

ANTICIPATES all losses, but reports no gains.

Economic entity assumption

Indicates that personal and business record keeping should be SEPARATELY maintained.

Periodicity Assumption

Separates financial information into TIME periods for reporting purposes.

Industry practice

Permits the use of fair value valuation in certain INDUSTRIES.

Materiality

Requires that information SIGNIFICANT enough to affect the decision of reasonably informed users should be disclosed.

Monetary given assumption

Assumes that the DOLLAR is the ‘measuring stick’ used to report the financial performance.