Intermediate accounting 1 Exam 1 terms

Faithful representation

the numbers/ descriptions match what really exists and happened

relevance

info must be capable of making a difference in a decision

predictive value

helps users form their own expectations about the future

confirmatory value

helps users confirm or correct prior expectations

materiality

a company specific aspect, info is this if omitting it or mistaking it would influence decisions that users make

completeness

all the info necessary for faithful representation is provided

neutrality

a company cannot select info to favor one set of interested parties over another

free from error

without mistakes

comparability

allows users to identify the real similarities and differences in economic events between companies

verifiability

happens when independent measures, using the same methods obtain similar results

timelessness

to have info ready for decision makers before it loses its capacity to influence decisions

understandability

the quality of info that lets reasonably informed users see its significance

cost constraint

it must be worth the work to obtain the information for it to be worth acquiring

economic entity assumption

a company must keep its activities sperate from its owners or anything else not related to the organization

going concern assumption

the company will have a long life

monetary unit assumption

the common denominator for accounting measures and analysis

periodicity assumption

implies that a company can divide its economic activities into artificial time periods

Historical Cost

GAAP requires that companies record bought items at the price they were purchased

fair value

the price that would be received if an asset was sold right now

expense recognition

all expenses follow revenues

full disclosure

the nature and amount of information included in financial reports reflects a series of judgmental trade-offs

revenue recognition

requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied