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ACC 356 Midterm 1 Questions And Answers 2024 Solutions
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ACC 356 Midterm 1 Questions And Answers 2024 Solutions
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ACC 356 Midterm 1 Questions And Answers 2024Solutions
Objectives of Financial Reporting ANS -Provide financial information that is *useful* to present and potential
capital providers for *decision making*
-Help capital providers assess amounts, timing, and uncertainty of prospective net cash inflows to the firm and
management's ability as a steward of resources (does management maximize the use of the resources and do they
limit liabilities and debt)
The Goal of Financial Reporting ANS Financial reporting should provide information about the economic
resources of an enterprise (assets), the claims to those resources (liabilities), and the effects of transactions, events,
and circumstances that change resources and claims to those resources (revenues and expenses)-->essentially the
balance sheet
Primary Characteristics of useful decision making ANS -Reliability (representational faithfulness)
-Relevance
Relevance and the components ANS -*Can make a difference in a decision* by helping users to form
predictions about future outcomes or correct prior expectations
-Predictive and Confirmatory Value
Predictive Value ANS -Helps users to increase the likelihood of correctly forecasting future outcomes
Ex: Net Accounts Receivable-->*Future cash flows*
Confirmatory Value ANS -Enables users to confirm or correct prior expectations
Ex: Net Accounts Receivable-->*Writeoffs*
Reliability (Representational Faithfulness) and the components ANS -Depiction of economic phenomena should
faithfully represent what it says it represents
-Complete, neutral (unbias), and free of material error
-Economic substance over legal form
Completeness ANS All information necessary for faithful depiction should be presented
, Neutrality ANS -The absence in reported information of a bias to attain a predetermined result or to induce a
particular mode of behavior
-Conservatism is not neutral
Freedom from Error ANS -Total absence of error is not necessary due to uncertainty (not material)
-Use best available information
-Too much uncertainty-->lack of verifiability-->material estimation errors-->lack of reliability
Enhancing characteristics of useful decision making ANS -Comparability (consistency)
-Verifiability
-Timing
-Understandibility
Verifiability ANS -Ability (through consensus among measurers) to ensure that information represents what it
purports to represent or that the measurement method is used without error or bias
-Direct and indirect
-Example: counting inventory
Comparability ANS -Allows users to detect and explain similarities and differences
-Consistency: applying the same methods in the same way across firms or within firms over time
-Comparability is the goal-->consistency is one way to achieve it
Timeliness ANS -Information is available before it loses capacity to make a difference
-Example of timely: Who cannot pay is important (estimating bad debt)
Tradeoffs ANS -Relevance versus verifiability/reliability
Ex: MPA acceptance, some things are relevant and not reliable while some things are reliable and not relevant
-Timeliness versus verifiability
Ex: In order to verify things you need time
Who are capital providers? ANS 1) equity/stockholders
2)Providers of debt/bond/loan (lenders)
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