Chapter 2 concepts

11 December 2022
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comparability
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Qualitative characteristic being employed when companies in the same industry are using the same accounting principles.
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confirmatory value
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Quality of information that confirms users' earlier expectations.
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consistency
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Imperative for providing comparisons of a company from period to period.
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neutrality
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Ignores the economic consequences of a standard or rule.
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verifiability
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Requires a high degree of consensus among individuals on a given measurement.
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relevance
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Predictive value is an ingredient of this primary quality of information.
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comparability, verifiability, timeliness and understandability
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Four qualitative characteristics that are related to both relevance and faithful representation.
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materiality
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An item is not recorded because its effect on income would not change a decision.
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faithful representation
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Neutrality is an ingredient of this primary quality of accounting information.
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relevance and faithful representation
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Two primary qualities that make accounting information useful for decision-making purposes.
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timeliness
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Issuance of interim reports is an example of what enhancing quality?
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gains and losses
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Arises from peripheral or incidental transactions.
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liabilities
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Obligation to transfer resources arising from a past transaction.
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investment by owners and comprehensive income
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Increases ownership interest.
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distribution to owners
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Declares and pays cash dividends to owners.
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comprehensive income
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Increases in net assets in a period from nonowner sources.
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assets
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Items characterized by service potential or future economic benefit.
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comprehensive income
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Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.
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revenues & expenses
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Arises from income statement activities that constitute the entity's ongoing major or central operations.
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equity
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Residual interest in the assets of the enterprise after deducting its liabilities.
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revenues
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Increases assets during a period through sale of product.
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distribution to owners
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Decreases assets during the period by purchasing the company's own stock.
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comprehensive income
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Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.
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expense recognition principle
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Allocates expenses to revenues in the proper period
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historical cost principle
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Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.)
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full disclosure principle
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Ensures that all relevant financial information is reported.
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going concern principle
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Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.)
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economic entity assumption
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Indicates that personal and business record keeping should be separately maintained.
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periodicity assumption
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Separates financial information into time periods for reporting purposes.
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industry practices
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Permits the use of fair value valuation in certain industries. (Do not use fair value principle.)
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monetary unit assumption
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Assumes that the dollar is the "measuring stick" used to report on financial performance.
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monetary unit assumption
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Under current GAAP, inflation is ignored in accounting due to the
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economic entity assumption
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Parent-subsidiary financials are an example of the ___________ assumption