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Question: Describe the major constraint inherent in the presentation of accounting information.

Short Answer

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Answer

Accounting information is liable to the cost constraint. Information is not beneficial till its advantages of it surpass the cost of arranging it.

Step by step solution

01

Meaning of Accounting Information

Accounting information is defined as the medium used by the entities for communicating with the internal and external parties. Users of accounting information comprise employees, shareholders, banks, creditors and government agencies.

02

Major constraint inherent in the presentation of accounting information

The major constraints on displaying accounting information include:

  • The principle of materiality indicates that only similar items should be displayed in the financial statements, but the full disclosure principle states to display all the considerable items in the financial statements.
  • The principle of timeliness states that every bit of information is to be given time, whether the information is accurate or not.
  • The principle of cost-benefit analysis indicates that each element of the accounting record must be identified by its cost and advantage, but the inspection of cost-benefit becomes tedious when the element cannot be evaluated.
  • Another constraint of accounting information is industry practices, as industry practices occasionally do not tally with the accounting principles.

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Most popular questions from this chapter

Expenses, losses, and distributions to owners are all decreases in net assets. What are the distinctions among them?

Identify which basic principle of accounting is best described in each item below.(a) Norfolk Southern Corporation reports revenue in its income statement when the performance obligation is satisfied instead of when the cash is collected.(b) Yahoo! recognizes depreciation expense for a machine over the 2-year period during which that machine helps the company earn revenue.(c) Oracle Corporation reports information about pending lawsuits in the notes to its financial statements.(d) Gap, Inc. reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair value is greater.

Question: Daniel Barenboim sells and erects shell houses, that is, frame structures that are completely finished on the outside but are unfinished on the inside except for flooring, partition studding, and ceiling joists. Shell houses are sold chiefly to customers who are handy with tools and who have time to do the interior wiring, plumbing, wall completion and finishing, and other work necessary to make the shell houses liveable dwellings.Barenboim buys shell houses from a manufacturer in unassembled packages consisting of all lumber, roofing, doors, windows and similar materials necessary to complete a shell house. Upon commencing operations in a new area, Barenboim buys or leases land as a site for its local warehouse, field office, and display houses. Sample display houses are erected at a total cost of \(30,000 to \)40,000 including the cost of the unassembled packages. The chief element of cost of display houses is the unassembled packages, in as much as erection is a short, low-cost operation. Old sample models are torn down or altered into new models every 3 to 7 years. Sample display houses have little salvage value because dismantling and moving costs amount to nearly as much as the cost of an unassembled package.Instructions

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E2-7 (L05,6) (Assumptions, Principles, and Constraint) Presented below are a number of operational guidelines and practices that have developed over time.

Instructions

Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices. (Do not use qualitative characteristics.)

  1. Fair value changes are not recognized in the accounting records.
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  9. Rationale for accrual accounting.
  10. The use of consolidated statements is justified.
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