Accounting principles 2023 exam study guide questions and answers

GAAP Generally accepted accounting principles IFRS International financial reporting standards ASPE Accounting standards for private enterprise Qualitative characteristics Relevance, reliability, understandability and comparability Relevance All information useful for decision making is present in the financial statements. Helps users predict future performance or confirm previous predictions Reliability Information is free from significant error and bias Understandability The financial information can be reasonably understood by its users if the users have knowledge of the business and a basic knowledge of accounting Comparability The financial statements of a company must be prepared in a similar way year after year Business entity assumption States that accounting for a business must be kept separate from the personal affairs of its owner of any other business Going concern assumption Assumes that a business will continue to operate into the foreseeable future Monetary unit assumption Requires that accounting records are expressed in terms of money Time period concept Requires that accounting takes place over specific time periods known as fiscal periods Measurement AKA Cost principle The process of determining the amount at which an item is recorded in the financial statement. Items must be recorded at their historical cost. Revenue recognition States that revenue can only be recorded (recognized) when goods are sold or when services are performed Expense recognition States that an expense must be recorded in the same accounting period in which it was used to produce revenue Consistency Prevents businesses from changing accounting methods for the sole purpose of manipulating figures on the financial statement Materiality Refers to the significance of information to users. Information is considered material if it could influence or change a user's decision Disclosure States that any and all information that affects the full understanding of a company's financial statements must be included with the financial statements