Chapter 3 Flashcards
Accounting Information System definition
The system of collecting and processing transaction data and communicating financial information to decision-makers
Accounting transactions definition
Events that require recording in the financial statements because they affect assets, liabilities, or stockholder’s equity
Comparability definition
Ability to compare the accounting information of different companies because they use the same accounting principles
Consistency definition
Use of the same accounting principles and methods from year to year within a company
Cost constraint definition
Constraint that weighs the cost that that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available
Economic entity assumption definition
An assumption that every economic entity can be separately identified and accounted for
Fair value principle definition
Principle that states that the assets and liabilities should be reported at fair value (the price that would be received if an asset was sold or the amount that would be required to be paid to settle a liability)
Faithful representation
Information that accurately depicts what really happened and is complete, neutral, and free from error
Financial accounting standards board
The primary accounting standard-setting body in the US
Full disclosure principle definition
Principle that dictates that companies disclose circumstances and events that make a difference to financial statement users
Generally Accepted Accounting Principles
A set of accounting standards that have substantial authoritative support and which guide accounting professionals
Going Concern Assumption definition
The assumption that the company will continue in operation for the foreseeable future
Historical Cost Principle
Principle that states that companies should record assets at their cost
International Accounting Standards Board (IASB)
An accounting standard-setting body that issues standards adopted by many countries outside of the US
International Financial Reporting Standards (IFRS)
Accounting standards, issued by the IASB, that have been adopted by many countries outside of the US
Materiality definition
Whether an item is large enough to likely influence the decision of an investor or creditor.
Monetary Unit assumption definition
An assumption that requires that only those things that can be expressed in money are included in the accounting records
Periodicity Assumption definition
An assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business
Public Company Accounting Oversight Board
The group charged with determining auditing standards and reviewing the performance of auditing firms
Relevance definition
The quality of information that indicates the information makes a difference in a decision
Securities and Exchange Commission (SEC)
The agency of the US government that oversees US financial markets and accounting standard-setting bodies
Timely definition
Information that is available to decision makers before it loses the capacity to influence decisions
Understandability definition
Information presented in a clear and concise fashion, so that users can interpret it and comprehend its meaning
Verifiable definition
The quality of information that occurs when independent observers, using the same methods, obtain similar results.
