What are the two fundamental qualities of accounting information?
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Most organizations devote a fair amount of time and effort to considering their goals and objectives. The accounting profession is no different. Foremost among the objectives of accounting and reporting is to provide useful information for investors, creditors, analysts, governments, and others. Show MyExceLab Accounting information is general purpose and should be designed to serve the information needs of all types of interested parties. To be useful, information should be helpful in assessing an entity’s economic resources, claims against resources, and what causes changes in resources and claims. Such assessments are generally benefited by accrual accounting, coupled with consideration of cash flows. Care must be taken to differentiate between resource changes resulting from economic performance and other factors (e.g., earnings vs. issuing additional shares of stock). The following qualities help to make accounting useful. Fundamental QualitiesRelevancyInformation should be timely and bear on the decision-making process by possessing predictive or confirmatory (feedback) value.Faithful RepresentationInformation must be truthful; complete, neutral, and free from error. Enhancing QualitiesComparabilityEven though different companies may use different accounting methods, there is still sufficient basis for valid comparison.ConsistencyDeviations in measured outcomes from period to period should be the result of deviations in underlying performance (not accounting quirks).VerifiabilityDifferent knowledgeable and independent observers reach similar conclusions.TimelinessAvailable in sufficient time to be capable of influence.UnderstandabilityClear and concise to those with reasonable business knowledge.
Be aware of the growing complaint that accounting has become too complex. Many persons within and outside the profession protest the ever growing number of rules and their level of detail. The debate is generally couched under the heading “principles versus rules.” Advocates of a principles-based approach argue that general concepts should guide the judgment of individual accountants. Others argue that the world is quite complex, and accounting must necessarily be rules-based. They believe that reliance on individual judgment may lead to wide disparities in reports that could render meaningful comparisons impossible.
Did you learn?What are the key objectives of accounting?What fundamental qualities serve to make accounting useful?Discuss the enhancing qualities including comparability, consistency, verifiability, timeliness, and understandability. Accounting information is the system that assembles all the financial information comprising of the people, records, and methods that are related to the business and processes them into information that is beneficial for taking decisions.The primary objective of financial reporting is to provide useful information for making business decisions. Useful accounting information should possess two fundamental qualitative characteristics:
Additionally, there are enhancing qualities.
What are the two fundamental qualities of accounting information quizlet?Relevance and faithful representation are the two primary qualities of useful accounting information.
What is the fundamental quality of accounting information?The fundamental qualities of accounting information are relevance and reliability, also known as representational faithfulness. If accounting data is to be relevant and useful to decision makers if must be timely.
What are the 2 main areas of accounting?There are two types of financial accounting: cash and accrual accounting.
What are the two types of accounting information?The two main accounting methods are cash accounting and accrual accounting. Cash accounting records revenues and expenses when they are received and paid. Accrual accounting records revenues and expenses when they occur. Generally accepted accounting principles (GAAP) requires accrual accounting.
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