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20 Cards in this Set
- Front
- Back
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third level assumptions
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economic entity
going concern monetary unit periodicity |
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Economic entity
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company keeps its activity separate from its owners and other businesses.
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Going concern
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company to last long enough to fulfill objectives and commitments
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Monetary unit
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money is the comming denominator and assumes reasonable stability
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Periodicity
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company can divide its economic activities into time periods.
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third level principles
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historical cost
revenue recognition matching full disclosure |
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historical cost
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the price, established by the exchange transaction, is the “cost”- definitive and objective, not subject to interpretation
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revenue recognition
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generally occurs (1) when realized or realizable and (2) when earned
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matching
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efforts (expenses) should be matched with accomplishment (revenues) whenever it is reasonable and practible to do so. “let the expenses follow the revenues.”
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full disclosure
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providing information that is of sufficient importance to influence the judgment and decisions of an informed user.
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Third level constraints
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cost-benefit
materiality industry practice conservatism |
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cost-benefit
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the cost of providing the information must be weighed against the benefits that can be derived from using it.
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materiality
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an item is material if its inclusion or omission would influence or change the judgement of a reasonable person.
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industry practice
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the peculiar nature of some industries and business concerns sometimes requires departure from basic accounting theory.
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conservatism
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when in doubt, choose the solution that wil be least likely to overstate assets and income.
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second level-qualitative characteristics
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relevance
reliability comparability consistency |
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Relevance
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making a difference in a decision.
Predictive value Feedback value Timeliness |
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Reliability
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Verifiable
Representational faithfulness Neutral - free of error and bias |
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Comparability
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Information that is measured and reported in a similar manner for different companies is considered comparable.
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Consistency
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When a company applies the same accounting treatment to similar events from period to period.
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