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Solution for Accounting Information Systems 1st Edition Chapter 1, Problem 1

by Robert Hurt
557 Solutions 18 Chapters 54724 Studied ISBN: 9780073195551 Management Information Systems 5 (1)

Chapter 1, Problem Reflection_and_Self-Assessment 1 : Reflection and Self-Assessment - 1.1 Based...

Reflection and Self-Assessment - 1.1

Based on your prior study of accounting, give two examples of each element of financial statements.  Also, find a web site that discusses the elements of the conceptual framework in greater detail.  In your own words, write a definition for each of the qualitative characteristics of accounting information.

 

Step-By-Step Solution

Reflection and Self-Assessment - 1.1

The financial statements are Income Statement, Retained Earnings Statement, Balance Sheet, and Cash Flow Statement. 

The income statement basically consists of revenues and expenses of that entity.  Revenues can come from many sources such as sales, interest gain from an investment while expenses can be operating expenses and/or administrative expenses.

The retained earnings statement is the connecting statement between the income statement and the balance sheet.  It displays two types of transactions that affect the retained earning:  the net income from operation and the dividends paid to stockholders.

The balance sheet shows the assets, liabilities and owner’s equity.  Assets of an entity can be some machines that are used to produce products, goodwill or cash.  Liabilities can be loans, or unearned revenue.

The cash flow statement reports cash flows by three types of activities:  cash flows from operating, investing and financing activities.  The examples of these activities are cash flows from transactions such as purchase and sale of merchandise by a retailer; sale and purchase of fixed assets; issuing or retiring equity and debt securities.

A website that discusses the elements of the conceptual framework in greater detail is Financial Standard Accounting Board website www.fasb.org.

The accounting information needs to be relevant and reliable.  Those two qualitative characteristics are primary of accounting information.  Relevant accounting information means its ability of helping decision makers predict the outcome of certain events or reflect the outcome to their prior expectation. In order to be relevant, accounting information also needs to be available at the right time.  Reliable accounting information is the matter of its faithfulness.  The information should be verifiable and unbiased.

 

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