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Chapter 2: Question 4Q (page 61)

Briefly describe the two fundamental qualities of useful accounting information.

Short Answer

Expert verified

The two fundamental qualities of useful accounting information are relevance and accuracy.

Step by step solution

01

Definition of Accounting Information

Accounting information is the system that assembles all the financial information comprising of the people, records, and methods that are related to the business and processes them into information that is beneficial for taking decisions.

02

Two fundamental qualities of useful accounting information

  • Relevance: Relevant information assists users by enabling them to make changes in decision making, forming predictions related to past, present, and future events for fair expectations.
  • Accuracy: It is dependent on the fact that whether the information, numbers, and descriptions comply with the past events and what already existed.

Thus, these are the two fundamental qualities of useful accounting information.

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Most popular questions from this chapter

(Assumptions, Principles, and Constraint) Presented below are the assumptions, principles, and constraints used in this chapter.

1. Economic entity assumption 6. Measurement principle (fair value)2. Going concern assumption 7. Expense recognition principle3. Monetary unit assumption 8. Full disclosure principle4. Periodicity assumption 9. Cost constraint5. Measurement principle (historical cost) 10. Revenue recognition principle

Instructions

Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once

.(a) Allocates expenses to revenues in the proper period.

(b) Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.)

(c) Ensures that all relevant financial information is reported.

(d) Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.)

(e) Indicates that personal and business record keeping should be separately maintained.(f) Separates financial information into time periods for reporting purposes.

(g) Assumes that the dollar is the “measuring stick” used to report on financial performance.

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.
  2. Financial information is presented so that investors will not be misled.
  3. Intangible assets are amortized over periods benefited.
  4. Agricultural companies use fair value for purposes of valuing crops.
  5. Each enterprise is kept as a unit distinct from its owner or owners.
  6. All significant post-balance-sheet events are disclosed.
  7. Revenue is recorded when the product is delivered.
  8. All important aspects of bond indentures are presented in financial statements.
  9. Rationale for accrual accounting.
  10. The use of consolidated statements is justified.
  11. Reporting must be done at defined time intervals.
  12. An allowance for doubtful accounts is established.
  13. Goodwill is recorded only at time of purchase.
  14. A company charges its sales commission costs to expense

Financial Reporting CaseIFRS2-5 As discussed in Chapter 1, the International Accounting Standards Board(IASB) develops accounting standards for many international companies. The IASB also has developed a conceptual framework to help guide the setting of accounting standards. While the FASB and IASB have issued converged concepts statements on the objective and qualitative characteristics, other parts of their frameworks differ.

Instructions

Briefly discuss the similarities and differences between FASB and IASB conceptual frameworks as related to elements and their definitions.

(Usefulness, Objective of Financial Reporting) Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position.

  1. Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements.
  2. General-purpose financial reports are most useful to company insiders in making strategic business decisions.
  3. Accounting standards based on individual conceptual frameworks generally will result in consistent and comparable accounting reports.
  4. Capital providers are the only users who benefit from general-purpose financial reporting.
  5. Accounting reports should be developed so that the users without knowledge of economics and business can become informed about the financial results of a company.
  6. The objective of financial reporting is the foundation from which the other aspects of the framework logically result.

What is the distinction between comparability and consistency?
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