Wileyplus CH2 Questions – Flashcards
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neutrality
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Absence of bias intended to attain a predetermined result or to induce a particular behavior.
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faithful representation
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Quality of information that assures users that information represents the economic phenomena that it purports to represent.
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confirmatory value
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Information about an economic phenomenon that changes past or present expectations based on previous evaluations.
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free from error
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The extent to which information is accurate in representing the economic substance of a transaction.
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completeness
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Includes all the information that is necessary for a faithful representation of the economic phenomena that it purports to represent.
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understandability
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Quality of information that allows users to comprehend its meaning.
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equity
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Retained earnings
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revenues
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Sales
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equity
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Additional paid-in capital
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assets
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Inventory
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expenses
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Depreciation
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losses
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Loss on sale of equipment
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liability
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Interest payable
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distribution to owners
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Dividends
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gains
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Gain on sale of investment
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investments by owners
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Issuance of common stock
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revenue recognition
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Norfolk Southern Corporation reports revenue in its income statement when it is earned instead of when the cash is collected.
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expense recognition
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Yahoo, Inc. recognizes depreciation expense for a machine over the 2-year period during which that machine helps the company earn revenue.
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full disclosure
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Oracle Corporation reports information about pending lawsuits in the notes to its financial statements.
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historical cost
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Eastman Kodak Company reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair value is greater.
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gains, losses
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Arises from peripheral or incidental transactions.
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liabilities
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Obligation to transfer resources arising from a past transaction.
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investment by owners, comprehensive income
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Increases ownership interest.
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distribution to owners
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Declares and pays cash dividends to owners.
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comprehensive income
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Increases in net assets in a period from nonowner sources.
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assets
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Items characterized by service potential or future economic benefit.
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comprehensive income
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Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.
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revenues, expenses
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Arises from income statement activities that constitute the entity's ongoing major or central operations.
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equity
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Residual interest in the assets of the enterprise after deducting its liabilities.
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revenues
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Increases assets during a period through sale of product.
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distribution to owners
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Decreases assets during the period by purchasing the company's own stock.
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comprehensive income
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Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.
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expense recognition principle
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Allocates expenses to revenues in the proper period. Intangible assets are capitalized and amortized over periods benefited. An allowance for doubtful accounts is established. A company charges its sales commission costs to expense.
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historical cost principle
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Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.) Fair value changes are not recognized in the accounting records. Goodwill is recorded only at time of purchase.
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full disclosure principle
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Ensures that all relevant financial information is reported. Financial information is presented so that investors will not be misled. All significant postbalance sheet events are reported. All important aspects of bond indentures are presented in financial statements.
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going concern assumption
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Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.)
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economic entity assumption
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Indicates that personal and business record keeping should be separately maintained. Each enterprise is kept as a unit distinct from its owner or owners. The use of consolidated statements is justified.
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periodicity assumption
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Separates financial information into time periods for reporting purposes. Reporting must be done at defined time intervals.
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industry practices
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Permits the use of fair value valuation in certain industries. (Do not use fair value principle.)
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monetary unit assumption
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Assumes that the dollar is the "measuring stick" used to report on financial performance.
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materiality
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Repair tools are expensed when purchased.
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industry practices or fair value principle
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Agricultural companies use fair value for purposes of valuing crops.
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revenue recognition principle
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Revenue is recorded at point of sale.
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revenue and expense recognition principles
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Rationale for accrual accounting.
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