ACG 3131 Conceptual Test Questions and Correct Answers
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Course
ACG 3131
Institution
ACG 3131
Relevance/Faithful Representation Two fundamental qualities that make accounting information useful for decision making purposes.
Relevance Information that is capable of making a difference in a decision is said to have this fundamental quality.
Faithful Representation Information that is comple...
ACG 3131 Conceptual Test Questions
and Correct Answers
Relevance/Faithful Representation ✅Two fundamental qualities that make accounting
information useful for decision making purposes.
Relevance ✅Information that is capable of making a difference in a decision is said to
have this fundamental quality.
Faithful Representation ✅Information that is complete and reasonably free of error and
bias is said to have this fundamental quality.
Comparability, Verifiability, Timeliness, Understandability ✅Four enhancing qualities
that are related to both relevance and faithful representation.
Comparability (Consistency) ✅An entity is to apply the same accounting methods to
similar events for successive accounting periods; that is, when an entity selects one
method from a list of alternative acceptable methods, that same method is used period
after period.
Comparability ✅Information is measured and reported in a similar manner for different
enterprises.
Faithful representation ✅Neutrality is an ingredient of this fundamental quality of
accounting information.
Neutrality ✅Requires that information cannot be selected to favor one set of interest
parties over another.
Relevance ✅Predictive value is an ingredient of this fundamental quality of
information.
Predictive value ✅When information provides a basis for forecasting annual earnings
for future periods, it is said to have this ingredient of a fundamental quality of accounting
information
Confirmatory Value ✅Quality of information that confirms or corrects users' prior
expectations.
Timeliness ✅Information must be available to decision makers before it loses its
capacity to influence their decisions.
, Comparability (Consistency) ✅Imperative for providing comparisons of a single firm
from period to period.
Comparability (Consistency) ✅Enhancing quality being employed when companies in
the same industry are using the same accounting principles.
Neutrality/Completeness ✅A company cannot suppress information just because such
disclosure is embarrassing or damaging to the entity.
Faithful Representation ✅The amounts and descriptions in financial statements should
agree with the elements or events that these amounts and descriptions purport to
represent due to this fundamental quality of information.
Verifiability ✅Independent measurers, using the same measurement methods, obtain
similar results.
Faithful Representation ✅The numbers and descriptions in financial statements
represent what really existed or happened.
Neutrality ✅Requires information to be free of personal bias.
Verifiability ✅Requires a high degree of consensus among individuals on a given
measurement.
Understandability ✅Financial information is a tool and, like most tools, cannot be much
direct help to those who are unable or unwilling to use it or who misuse it.
Materiality ✅Both the nature and/or magnitude of the item must be considered in
determining if an item could influence decisions of a user.
Materiality and Completeness ✅All items that are likely to influence a decision of users
of financial information must be disclosed.
Free from Error ✅An accurate representation of a financial item.
Relevance ✅This fundamental quality assures that there are no omissions that would
cause statements to be misleading.
Materiality ✅Although an item such as a shredder may be of service for eight years,
the total cost of the item may be expensed when it is purchased, because the amount is
too insignificant to warrant the strict treatment of depreciation over the eight years.
Neutrality/Free from Error ✅Avoid overstatement of net income, assets, and owners'
equity, but do not intentionally understate them.
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