Question

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Differentiate the following;
1. Relevance vs. faithful representation
2. Predictive Value vs. confirmatory value
3. Neutrality vs free from error
4. Comparability vs Verifiability
5. Timeliness vs understandability

Enumerate the Following;
1. Fundamental Characteristics
a)
b)

2. Components/Aspects to Fundamental Characteristics
a)
b)
c)
d)
e)
f)

3. Enhancing Characteristics
a)
b)
c)
d)

Enumerate the Major steps in Accounting Cycle
a)
b)
c)
d)
e)
f)
g)
h)
i)

Enumerate the different kinds of Source Documents
1.
2.
3.
4.
5.
6.
7.

Differentiate Accountable and Non-Accountable events

Differentiate General Journal vs General Ledger

Identification
1. Means that the information must possess predictive and/or confirmatory value,
typically both. _________________
2. It is the ability of the accounting data to predict or forecast values for decision
making. ______________
3. Implies that different knowledgeable and independent measures would reach
consensus. ____________
4. There are no errors or omissions in the description of the amount of the process used
to report the amount._________________________
5. Exists when there is agreement between measure or description and the
phenomenon it purports to represent. _______________________________________
6. Depends on a company’s particular situation and is based on the nature or magnitude
of the item that is being reported. _________________________________.
7. Ability to confirm or change the values that were predicted.
________________________
8. Can be achieved if uniform standard or process is being followed all through the years
of the company to compare the accounts being measured with such.
_____________________________
9. Users must be able to comprehend the information within the context of the decision
being made. _____________________
10. Information is available to users early enough to allow them to use it for their
decision making. __________________________________________
11. Includes ALL the information necessary for faithful representation of the economic
phenomena that it purports to represent. ____________________________
12. A financial accounting standard, states that process is free from bias.
13. Process that includes identifying, collecting and analyzing documents and
transactions, recording the transactions on the journals, posting the journalized
amounts to accounts in the general and subsidiary ledgers.
_____________________________
14. Are transactions that transpired in a given accounting period wherein such have
affected the assets, liabilities or the equity of the business.
_____________________________
15. Are events that though transpired in the ordinary course of doing business, such
cannot affect the assets, liabilities or equity at that given date.
__________________________
16. Important to bookkeeping and accounting process because they serve as physical
evidence that a financial transaction actually occurred.
____________________________
17. These are documents listing goods or services provided, as well as their prices.
___________________
18. These are documents confirming that cash or goods have been received.
____________________
19. A document issued by the seller of goods or services to the buyer, reducing the
amount that the buyer owes to the seller under the terms of an earlier invoice.
___________________________
20. Those receipts that are machine validated and are issued to buyers.
__________________________
21. Is a specialized accounting journal and it is referred to as the main entry book used in
accounting system tokeep track of the sales of items when cash is received.
___________________________________
22. Is a specialized accounting and it is also a prime entry which is used in an accounting
system to keep track of the orders of items placed using accounts payable.
__________________________________
23. A specialized accounting journal to keep up the sale of items that customers have
purchased on account._______________________________
24. Is a set of numbered accounts a business uses to keep track of its financial transactions to prepare financialreports. It summarizes each type of assets, liabilities,
equity, revenue and expenses.___________________________
25. A record kept by internal accountants to all financial expenditures made by the
company._________________________

Match the qualitative characteristics below with the following statements.

1. Relevance
2. Faithful representation
3. Predictive value
4. Confirmatory value
5. Comparability
6. Completeness
7. Neutrality
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.

Match the qualitative characteristics below with the following statements.

1. Timeliness
2. Completeness
3. Free from error
4. Understandability
5. Faithful representation
6 Relevance
7. Neutrality
8. Confirmatory value

(a) Quality of information that assures users that information represents the economic
phenomena that it purports to represent.
(b) Information about an economic phenomenon that changes past or present expectations
based on previous evaluations.
(c) The extent to which information is accurate in representing the economic substance of a
transaction. (d) Includes all the information that is necessary for a faithful representation of the
economic phenomena that it purports to represent.
(e) Quality of information that allows users to comprehend its meaning.
(Qualitative Characteristics) Accounting information provides useful information about business
transactions and events. Those who provide and use financial reports must often select and
evaluate accounting alternatives. The Conceptual Framework examines the characteristics of
accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or
sacrifices among the characteristics of useful information.

Instructions Discuss the propriety of timing the recognition of revenue in Piper Publishing
Company’s accounts with respect to the following. (a) The cash sale of the magazine subscription.
(b) The publication of the magazine every month. (c) Both events, by recognizing a portion of the
revenue with the cash sale of the magazine subscription and a portion of the revenue with the
publication of the magazine every month.

(Qualitative Characteristics) Accounting information provides useful information about business
transactions and events. Those who provide and use financial reports must often select and
evaluate accounting alternatives. The Conceptual Framework examines the characteristics of
accounting information that make it useful for decision-making. It also points out that various
limitations inherent in the measurement and reporting process may necessitate trade-offs or
sacrifices among the characteristics of useful information.

Instructions

(a) Describe briefly the following characteristics of useful accounting information.
(1) Relevance. (4) Comparability (consistency).
(2) Faithful representation. (5) Neutrality.
(3) Understandability.

(b) For each of the following pairs of information characteristics, give an example of a situation
in which one of the characteristics may be sacrificed in return for a gain in the other.
(1) Relevance and faithful representation. (3) Comparability and consistency.
(2) Relevance and consistency. (4) Relevance and understandability.
(c) What criterion should be used to evaluate trade-offs between information
characteristics?Recorded in the general journal.

Answer 1

Answer:-

1.Relevance Vs. Faithful representation

An information in financial statement is relevant if it influences the financial decision of the user.For example,if any impairment loss is recorded in financials of current year, it may influence the deciaion of user as assets valuation would change.Faithful representation means that information presented in financials should be free from mistakes and should be complete.For example if any bad debts are recorded in the current year but the amount recorded does not represent actual bad debts,then the same is not a faithful representation.

2.Predictive value vs Confirmatory value

Predictive value is the information in financial statements that provides users a base to predict future values and trends.Confirmatory value is the information about the past events in company.Both the information types are relevant for the users in decision making.

3.Neutrality Vs. free from error

Neutrality refers to faithful representation in financial statement that is free from bias i.e., fair representation.For example,if inventory has become obsolete but the same is not written off in books to overstate the same,then it is not free from bias. Free from error refers to faithful representation in financial statement that is correct and accurate.For example,if a provision is made in the financial statement,but the amount is not correct then the same is a not free from error.

4.Comparability Vs. Verifiability

Comparability means the financial statements should be comparable with other entities.It helps to identify the growth of the company,any weakness or strength,etc.It helps to identify where the company stands in the market.Verifiability refers to verification of the financials to make it reliable.It gives users an assurance that financials are being checked by a separate body and are being free from bias or errors.