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Chap 2 pg 85

Useful Acct.

QuestionAnswer
What characteristics make information useful? understandability, relevance, reliability, comparability, consistency, materiality, conservatism
Understandability The quality of accounting information that makes it comprehensible to those willing to spend the necessary time.
Relevance The capacity of information to make a difference in a decision.
Reliability The quality that makes accounting information dependable in representing the events that it purports to represent.
Comparability For accounting information the quality that allows a user to analyze two or more companies and look for similarities and differences.
Depreciation The process of allocating the cost of long-term tangible asset over its useful life.
Consistency For accounting information, the quality that allows a user to compare two or more accounting periods for a single company.
Materiality The magnitude of an accounting information omission or misstatement that will affect the judgment of someone relying on the information.
Conservatism The practice of using the least optimistic estimate when two estimates of amounts are about equally likely.
Operating cycle The period of time between the purchase of inventory and the collection of any receivable from the sale of the inventory.
Current asset An asset that is expected to be realized in cash or sold or consumed during the operating cycle or within one year if the cycle is shorter than one year.
Current liability An obligation that will be satisfied within the next operating cycle or within one year if the cycle is shorter than on year.
Liquidity The ability of a company to pay its debts as they come due.
Working capital Current assets minus current liabilities.
Current ratio Current assets divider by current liabilities.
Single-step income statement An income statement in which all expenses are added together and subtracted from all revenues.
Multiple-step income statement An income statement that shows classifications of revenues and expenses as well as important subtotals.
Gross profit Sales less cost of goods sold.
Profit margin Net income divided by sales. Alternate term: Return on sale.
Auditors' report The opinion rendered by a public accounting firm concerning the fairness of the presentation of the financial statements. Alternate term: Report of independent accountants.
Created by: sam6204
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