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Chapter 2: Question 3Q (page 61)

What is meant by term 鈥渜ualitative characteristics of accounting information鈥�?

Short Answer

Expert verified

The term 鈥渜ualitative characteristics of accounting information鈥� refers to the attributes that make the information contained infinancial statements beneficial to the users. The qualitative characteristics of accounting information include relevance, reliability, understandability, and comparability.

Step by step solution

01

Definition of “qualitative characteristics of accounting information”.

Qualitative characteristics of accounting information are the qualities that allow the users of financial information to comprehend and make decisions on financial reports more easily.

In the absence of these qualitative characteristics, the accounting information would be vague and not presented in an orderly manner.

02

Types of “qualitative characteristics of accounting information”

There are basically four types of qualitative characteristics of accounting information. They are:

  • Relevance: The term relevance here means that the relevant information must be timely predictable, assist users in providing feedback, and positively influence their decisions.
  • Reliability: The term reliability means that the users must be able to rely on the information provided to them. For this purpose, the information provided to them must be free from any bias, and it should also be accurate.
  • Understandability: Understandability in accounting information means that the users must be able to comprehend the information in the same manner as it is conveyed to them.
  • Comparability: The term comparability here mean that accounting information must be comparable. The users of the general-purpose reports must be able to compare different aspects of entities over different time periods and with other entities.

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Most popular questions from this chapter

BE2-9 (L05) If the going concern assumption is not made in accounting, discuss the differences in the amounts shown in thefinancial statements for the following items.

(a) Land. (d) Inventory.

(b) Unamortized bond premium. (e) Prepaid insurance.(c) Depreciation expense on equipment.

BE2-1 (L03) Match the qualitative characteristics below with the following statements. 1. Relevance 5. Comparability 2. Faithful representation 6. Completeness 3. Predictive value 7. Neutrality 4. Confirmatory value 8. Timeliness (a) Quality of information that permits users to identify similarities in and differences between two sets of economic phenomena. (b) Having information available to users before it loses its capacity to influence decisions. (c) Information about an economic phenomenon that has value as an input to the processes used by capital providers to form their own expectations about the future. (d) Information that is capable of making a difference in the decisions of users in their capacity as capital providers. (e) Absence of bias intended to attain a predetermined result or to induce a particular behavior.

Homer Winslow and Jane Alexander are discussing various aspects of the FASB鈥檚 concepts statement on the objective of financial reporting. Homer indicates that this pronouncement provides little, if any, guidance to the practicing professional in resolving accounting controversies. He believes that the statement provides such broad guidelines that it would be impossible to apply the objective to present-day reporting problems. Jane concedes this point but indicates that the objective is still needed to provide a starting point for the FASB in helping to improve financial reporting.Instructions

  1. Indicate the basic objective established in the conceptual framework.
  2. What do you think is the meaning of Jane鈥檚 statement that the FASB needs a starting point to resolve accounting controversies?

(Elements of Financial Statements) Ten interrelated elements that are most directly related to measuring the performance and financial status of an enterprise are provided below.

Assets Distributions to owners Expenses Liabilities Comprehensive Income Gains Equity Revenues Losses Investments by owners

Instructions

Identify the element or elements associated with the 12 items below.(a) Arises from peripheral or incidental transactions.

(b) Obligation to transfer resources arising from a past transaction.

(c) Increases ownership interest.

(d) Declares and pays cash dividends to owners.

(e) Increases in net assets in a period from nonowner sources.

(f) Items characterized by service potential or future economic benefit.

(g) Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.

(h) Arises from income statement activities that constitute the entity鈥檚 ongoing major or central operations.

(i) Residual interest in the assets of the enterprise after deducting its liabilities.

(j) Increases assets during a period through sale of product.

(k) Decreases assets during the period by purchasing the company鈥檚 own stock.(l) Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.

Question: For each item below, indicate to which category of elements of financial statements it belongs.

(a) Retained earnings (f) Loss on sale of equipment

(b) Sales (g) Interest payable

(c) Additional paid-in capital (h) Dividends

(d) Inventory (i) Gain on sale of investment

(e) Depreciation (j) Issuance of common stock
See all solutions

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