Fundamental Characteristics
What part of relevance is the ability for a statement to predict future events?
Predictive Value
Statements are created quickly enough to have an effect on future financial decisions
Timeliness
Assumes that a company's statements are in a stable unit of money
Monetary Unit
Which principle is also known as the "matching principle" ?
Expense Recognition
What makes up stockholder's equity?
Contributed capital and retained earnings
What part of relevance is the ability for a statement to confirm past events?
Confirmatory value
What are the 4 enhancing characteristics?
Comparability, verifiability, timeliness, understandability
Assumes that a company reports its financial information at regular, consistent time intervals
Time period
Expenses must be recorded in the same period as the revenue they helped generate
Expense Recognition
Which financial statements records information at a snapshot in time?
Balance sheet
What part of relevance is the ability for a statement to influence financial decisons?
Material
If checked by an external user, the statements would be accurate
Verifiability
Assumes that the company will remain alive long enough to fulfill its current financial commitments
Going concern
Transactions must be recorded at their original cost in the accounting records
Historical cost
Name a current asset
-Accounts Receivable
-Cash
-Inventory
-Prepaid assets
What are the 3 components of faithful representation?
Complete, neutral, free from error
The statement is in terminology that someone with reasonable accounting knowledge could analyze
Understandability
What are the 4 assumptions?
Going concern, monetary unit, economic entity, time period
Companies should be careful not to over-exaggerate or under-exaggerate the numbers on their statements
Conservatism
What type of business endures double taxation?
Corporation
What are the 2 fundamental characteristics?
Relevance and faithful representation
The statement is able to be judged against statements from other companies/ previous years
Comparability
Assumes that the company's money is different from the owner's money
Economic Entity
Revenue must be recorded when the good/service is performed, even if payment has not been received
Revenue recognition
What is the formula for current ratio?
Current assets / Current liabilities