Ch. 2 Conceptual Framework Flashcards Preview

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Flashcards in Ch. 2 Conceptual Framework Deck (28)
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1
Q

Two fundamental characteristics of accounting information

A

Relevance

Representational faithfulness

2
Q

Describe relevance

A

Information must have the ability to make a difference in a decision.
It helps users make predictions about past, present and future events.

3
Q

Describe representational faithfulness

A

Information should accurately reflect an economic event or transaction.

4
Q

What are the 4 enhancing characteristics of accounting information

A

Comparability
Verifiability
Understandability
Timeliness

5
Q

Describe comparability

A

Info is measured and reported in a similar consistent way, company to company, and year to year

6
Q

Describe verifiability

A

Knowledgable independent users achieve similar results or reach a consensus

7
Q

Describe understandability

A

Info is clear and of sufficient quality

8
Q

Describe timeliness

A

Info should be given to decision-makers while it is still able to influence decisions.

9
Q

What are the 3 characteristics of Assets

A

Economic benefit that generates cashflow.
Entity has legal ownership, control of asset.
Benefits result from past transaction.

10
Q

What are the 3 characteristics of Liabilities

A

Represents a present duty or responsibility.
It obligates the entity.
Results from a past transaction.

11
Q

Define constructive obligation

A

They arise through the company’s acknowledgement of a potential economic burden, even though it’s not in the terms of the sales contract.

12
Q

Define equitable obligation

A

Arises due to moral or ethical considerations

13
Q

What is equity

A

Residual interest remaining after deducting liabilities from assets

14
Q

What are revenues

A

Increases in economic resources

15
Q

What are expenses

A

Decreases in economic resources, incurrence of liabilities

16
Q

What are gains

A

Increases in equity, not including revenue or owner investments

17
Q

What are losses

A

Decreases in equity, not including expenses or owner withdrawals

18
Q

What is the economic entity assumption

A

An assumption that a company’s business activity can be kept separate and distinct from its owners and other business units.

19
Q

Define control

A

The power to direct the activities of another entity to generate returns for the investor.

20
Q

What is the revenue recognition and realization principle

A

Revenue is recognized when risks and rewards have passed, revenue is measurable and collectible.
Revenue is realized when goods or services are exchanged for cash or claims to cash.

21
Q

What is the matching principal?

A

Matching costs with the revenues they produced in the same period.

22
Q

What is the periodicity assumption?

A

A company’s economic activities can be divided into time periods.

23
Q

Define the monetary unto assumption

A

Money is the common denominator of economic activity

24
Q

What is the going concern assumption

A

Assumption that a company will continue to operate for the foreseeable future

25
Q

What is the historical cost principal

A

Provides guidance on measuring transactions and balances based on acquisition price.

26
Q

What is the fair value principal

A

Provides guidance on measuring financial statement elements using best estimates of market values.

27
Q

What is the full disclosure principle?

A

Anything relevant to decisions should be included in the financial statements.

28
Q

What must be considered in order to measure fair value

A

Attributes of the asset/liability
How the item is to be used (highest and best use)
Principal market (the most advantageous)
The valuation technique