Characteristics of Financial Information - Chapter Summary

A set of flashcards summarizing the key characteristics and definitions related to financial information from Chapter 3.

Accrual Accounting

Recognizing transactions in the periods they relate to, regardless of payment status.

Going Concern

The assumption that a business will continue its operations for the foreseeable future.

Relevance

The characteristic that ensures financial information helps users make decisions.

Faithful Representation

Providing a true and genuine picture of the business's financial situation.

Materiality

The significance of information, where its omission or misstatement can influence decisions.

Comparability

The ability to compare financial information across different periods and entities.

Verifiability

The requirement that financial information can be substantiated with evidence.

Timeliness

Information must be available to users when they need it to make informed decisions.

Understandability

Information should be comprehensible to all users with a basic knowledge of financial accounting.

Cost Constraint

The principle that the benefits of financial reporting should justify its costs.

Asset

A present economic resource controlled by the entity as a result of past events.

Liability

A present obligation to transfer an economic resource as a result of past events.

Equity

The residual interest in the assets of an entity after deducting liabilities.

Income

Increases in assets or decreases in liabilities that result in an increase in equity.

Expenses

Decreases in assets or increases in liabilities that result in a decrease in equity.

Historic Cost

The original cost of an asset or liability, easy to audit and verify.

Current Value

A more relevant value that reflects the current worth of an asset or liability.

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction.

Value in Use

The present value of the expected cash flows from an asset's current use.

Current Cost

The cost that would be incurred to acquire an asset today.