Chapter 2 Accounting Principles fully solved.

balance sheet a financial statement that reports the assets, liabilities, and stockholders, equity at a specific date. comparability ability to compare accounting information of different companies because they use the same accounting principles. conceptual framework a coherent system of interrelated objective and fundamentals that can lead to consistent standards. conservatism the approach of choosing an accounting method when in doubt that will least likely overstate assets and net income. consistency use of the same accounting principles and methods from year to year within a company. cost principle accounting principle that assets should be recorded at their historical cost. economic entity assumption accounting assumption that economic events can be identified with a particular unit of accountability. elements of financial statements definitions of basic terms used in accounting. full disclosure principle accounting principle that circumstances and events that make a difference to financial statements users should be disclosed. generally accepted accounting principles (GAAP) a set of rules and practices, having substantial authoritative support, that are recognized as a general guide for financial reporting purposes. going concern assumption the assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments. income statement a financial statement that presents the revenues and expenses and resulting and resulting net income or net loss of a company for a specific period of time. International Accounting Standards Committee (IASC) an accounting organization whose purpose is to formulate and publish international accounting standards and to promote their acceptance worldwide. matching principle accounting principle that expenses should be matched with revenues in the period when efforts are expended to generate revenues. materiality the constraint of determining if an item is important enough to likely influence the decision of a reasonably prudent investor or creditor. monetary unit assumption accounting assumption that only transaction data capable of being expressed in monetary terms should be included in accounting records. relevance the quality of information that indicates the information makes a difference in a decision. reliability the quality of information that gives assurance that it is free of error and bias. retained earning statement a financial statement that summarizes the changes in retained earnings for a specific period of time. revenue recognition principle accounting principle tat revenue should be recognized in the accounting period in which it is earned (generally at the point of sale). statement of cash flows a financial statement that provides information about the cash inflows (receipts) and cash outflows (payments) of an entity for a specific period of time. time period assumption accounting assumption that the economic life of a business can be divided into artificial time periods.