accounting paper

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Chapter 2 acct. terms

Accruals- are the accounting recognition of assets and liabilities that have not yet been realized as a cash flow.

Capital maintenance- any enterprise has to preserve its capital investments, annual profit can be measured only after keeping the same level of net assets from the beginning to the end of the year. (excluding transactions with shareholders)

Commitment- the element definition is not met for a contract that is a commitment.

Comparability- a factor when considering the relationship between two pieces of information. Consistency using the same policies from year to year or Uniformity the companies with similar transactions use the same policies or accounting treatments.

Completeness- to ensure that information faithfully represents the economic events or financial elements that it is purporting to measure, the information must not mislead or deceive.

Confirmatory value- accounting information should be helpful to external decision-makers who are confirming past predictions or making updates, adjustments or corrections to predictions. (Feedback value)

Consideration-is whatever the buyer gives the seller as a payment.

Consistency- involves applying accounting concepts and principals from period to period in the same manner.

Constant dollar capital dollar maintenance- recognizes that not all dollars are created equal. If prices are rising (inflation) a dollar of capital at the end of the year isn’t worth as much as the beginning.

Continuity assumption- is aka the going concern assumption, under the continuity assumption; the business entity is expected to continue operations into the future. Two occasions when they’re not valid 1. When a business is a limited life venture 2. When a business is in financial difficulty and is expected to be shut down or liquidated.

Deferrals- refer to the delayed recognition of costs and receipts that have been realized through cash flows but have not yet contributed to the earnings process as expenses and revenues.

Elements-the building blocks for financial statements are called elements. Assets liabilities and owners equity/net asset. Revenues/gains, expense/losses and other comprehensive income.

Entity concept- the owners are one of many participants or stakeholders, in the enterprise.

Entity specific assumptions- are very common, but that actually depend on an individual entity’s reporting circumstances. 1. Time period 2. Separate entity 3. Unit of measure 4. Continuity 5. Proprietary approach 6. Stable currency

Entry value- is what it would cost to replace an asset at current prices at the statement date.

Ethical professional judgment- The ability to make appropriate choices in accounting.

Executory contract- a contract wherein neither party had yet fulfilled the requirements of the contract and would not be recognized because the first recognition criterion is failed.

Exit value- is what the company could receive or recover if the asset were sold on the statement date.

Fair value- is a current measurement of what an asset or liability is worth at the reporting date. It can be either an entry or an exit value.

Feedback value- accounting information should be helpful to external decision-makers who are confirming past predictions or making updates, adjustments or corrections to predictions. (Confirmatory value)

Freedom from material error- representational faithfulness does not imply “accuracy” in the sense that the measurement is completed free from error.

Full disclosure-means that the financial statements should report all relevant information bearing on the economic affairs of a business enterprise.

Going concern assumption- the going concern assumption, under the continuity assumption; the business entity is expected to continue operations into the future. Two occasions when they’re not valid 1. When a business is a limited life venture 2. When a business is in financial…