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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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CORNERSTONE 2.1

Cornerstone Exercise 2-16 Qualitative Characteristics

Three statements are given below.

  1. When financial information is free from error or bias, the information is said to possess this characteristic.
  2. Griffin Company uses the same depreciation method from period to period.
  3. A trash can that is purchased for $10 is expensed even though it will be used for many years.

Required:

Give the qualitative characteristic or constraint that is most applicable to each of the statements.

To determine

Concept Introduction:

Faithful Representation: It is concept which states that financial statements should be prepared with accuracy. A faithfully represented information has three attributes. That is it should be complete, error free and unbiased.

Requirement 1:

To specify the qualitative characteristic or constraint that is most suitable when the financial information is free from error or bias.

Explanation

When the financial information is free from error or bias it is said to be a faithful information. A financial statement which includes all the information that ...

To determine

Concept Introduction:

Consistency: It means that when a company adopts an accounting principle or accounting method continuously in future accounting periods or multiple companies use same accounting principle or accounting method in a single period. A company follows consistency principle so that the results are comparable.

Requirement 2:

To specify the qualitative characteristic or constraint that is most suitable whenGriffin company uses the same method of depreciation from period to period.

To determine

Concept Introduction:

Materiality: It is an aspect of relevance. In a business, materiality constraint is a threshold if a misstatement or omission of any business event could influence decisions that users make based on financial statements of business.

Requirement 3:

To specify the qualitative characteristic or constraint that is most suitable when a trash can that is purchased for $10 is expensed even though it will be used for many years.

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