Chapter 3 Flashcards
(10 cards)
GAAP ( Generally Accepted Accounting Principles)
Set of rules and guidelines having substantial authoritative support that companies use to determine ;
- type of financial information to disclose
- Format
- How it measures Liabilities, Assets, Revenue and Expenses
Fundamental Qualities of Accounting
Faithfulness - Information accurately depicts what really happened (Complete, Neutral, Free from Error)
Relevance - Information portrayed must be relevant ( Helps make a difference in a decision)
Materiality
Company specific aspect. Size makes it likely to influence the decision of an investor or creditor.
5 Useful Information to Enhance Financial Quality
- Comparability - Using same accounting principles
- Verifiable - Other observers conclude the same result
- Understandability - concise and clear
- Consistency - Using the same accounting principles and methods from year to year
- Timely - Specific time-frame
Assumptions in Financial Reporting #1
Monetary Unit Assumption - Can only be expressed in money
Assumptions in Financial Reporting #2
Economic Entity Assumption - Every economic entity can be separately identified and accounted for
Assumptions in Financial Reporting #4
Going Concern Assumption - The business will remain in operation for the foreseeable future
Assumptions in Financial Reporting #3
Periodicity Assumption - Life of a business can be divided into artificial time periods `
The Measurement Principles
Historical Cost - Dictates companies record assets at cost
Fair Value - Indicates that assets and liability should be reported at fair value
Full Disclosure Principle - Disclose all circumstances and events that would make a difference to financial statement users
Cost Constraint - accounting standard setters weigh the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the info available
3 Accounting Information System for Analyzing
Collecting
Processing
Communicating
