Module 3, Chapter 3 Handout The Accounting Information Systeme DO IT! 3.1 The following characteristics, assumptions, principles, and constraint guide the FASB when it creates accounting standards. g Periodicity assumption a. Relevance d. Consistency b. Faithful representation e. Monetary unit assumption Comparability f Economic entity assumption h. Going concern assumption 1. Historical cost principles Full disclosure principle k Materiality 1. Cost constraint Instructions Match each item above with a description below. 1. 2. 3. 4. 5. 6 7 8. 9. 10. 11. 12. Items not easily quantified in dollar terms are not reported in the financial statements. Accounting information must be complete, neutral, and free from error. Personal transactions are not mixed with the company's transactions. The cost to provide information should be weighed against the benefit that users will gain from having the information available A company's use of the same accounting principles from year to year. Assets are recorded and reported at original purchase price. Accounting information should help users predict future events, and should confirm or correct prior expectations. The life of a business can be divided into artificial segments of time. The reporting of all information that would make a difference to financial statement users. The judgment concerning whether an item's size makes it likely to influence a decision-maker. Assumes a business will remain in operation for the foreseeable future. Different companies use the same accounting principles. E3.4 Instructions Describe the effect of each transaction on assets, liabilities, and stockholders' equity. For example, the first answer is (1) Increase in assets and increase in stockholders' equity. 1. Issued common stock to investors in exchange for cash received from investors. Assets Increase 2. Paid monthly rent. 3. Received cash from customers when service was performed. 4. Billed customers for services performed. 5. Paid dividend to stockholders 6. Incurred advertising expense on account. 7. Received cash from customers billed in (4) 8. Purchased additional equipment for cash. 9. Purchased equipment on account. Liabilities Stockholders' Equity Increases