The major principles include exchange price or cost revenue recognition

The major principles include exchange price or cost

This preview shows page 23 - 25 out of 290 pages.

The major principles include exchange-price (or cost), revenue recognition, matching, gain and loss recognition, and full disclosure. Major exceptions to the realization principle include cash collection as point of revenue recognition, installment basis of revenue recognition, and the percentage-of-completion method of recognizing revenue on long-term construction projects. Modifying conventions include cost-benefit, materiality, and conservatism.The FASB has defined the objectives of financial reporting, qualitative characteristics of accounting information, and elements of financial statements.Financial reporting objectives are the broad overriding goals sought by accountants engaging in financial reporting.Qualitative characteristics are those that accounting information should possess to be useful in decision making. The two primary qualitative characteristics are relevance and reliability. Another qualitative characteristic is comparability.Pervasive constraints include cost-benefit analysis and materiality.The FASB has identified and defined the basic elements of financial statements.The FASB has also described revenue recognition criteria and provided guidance as to the timing and nature of information to be included in financial statements.The summary of significant accounting policies aid users in interpreting the financial statements.To a large extent, accounting theory determines the nature of those policies. Chapter 2 Self – TestIndicate whether each of the following statements is true or false.The three forms of business organizations are single proprietorship, partnership, and trust.False. Corporation, not trust, is the third form.
The three types of business activity are service, merchandising, and manufacturing.True. The income statement shows the profitability of the company and is dated as of a particular date, such as 2010 December 31.False. The income statement is dated using a period of time, such as “For the Year Ended2010 December 31”.The statement of retained earnings shows both the net income for the period and the beginning and ending balances of retained earnings.True. In addition, the statement of retained earnings shows dividends declared. The balance sheet contains the same major headings as appear in the accounting equation. True. Both show assets, liabilities, and stockholders’ equity. Chapter 6 Self- TestIndicate whether each of the following statements is true or false.The business entity concept assumes that each business has an existence separate from all parties except its owners.False. The business entity concept assumes that each business has an existence separatefrom its owners, creditors, employees, customers, other interested parties, and other businesses.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture