Page 222 - Accounting Principles (A Business Perspective)

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Exchange-price (or cost) principle Transfers of resources are recorded at prices agreed on by the parties
at the time of the exchange.
Feedback value A qualitative characteristic that information has when it reveals the relative success of
users in predicting outcomes.
Financial reporting objectives The broad overriding goals sought by accountants engaging in financial
reporting.
Full disclosure principle Information important enough to influence the decisions of an informed user of
the financial statements should be disclosed.
Gain and loss recognition principle Gains may be recorded only when realized, but losses should be
recorded when they first become evident.
Gains Typically result from the sale of long-term assets for more than their book value.
Going-concern (continuity) assumption The assumption that an entity will continue to operate
indefinitely unless strong evidence exists that the entity will terminate.
Historical cost The amount paid, or the fair market value of a liability incurred or other resources
surrendered, to acquire an asset and place it in a condition and position for its intended use.
Installment basis A revenue recognition procedure in which the percentage of total gross margin
recognized in a period on an installment sale is equal to the percentage of total cash from the sale that is
received in that period.
Liquidation Terminating a business by ceasing business operations and selling off its assets.
Losses Asset expirations that are usually involuntary and do not create revenues.
Matching principle Expenses should be recognized as they are incurred to produce revenues.
Materiality A modifying convention that allows the accountant to deal with immaterial (unimportant)
items in an expedient but theoretically incorrect manner; also a qualitative characteristic specifying that
financial accounting report only information significant enough to influence decisions or evaluations.
Modifying conventions Customs emerging from accounting practice that alter the results obtained from a
strict application of accounting principles; conservatism is an example.
Money measurement Use of a monetary unit of measurement, such as the dollar, instead of physical or
other units of measurement—feet, inches, grams, and so on.
Neutrality A qualitative characteristic that requires accounting information to be free of measurement
method bias.
Percentage-of-completion method A method of recognizing revenue based on the estimated stage of
completion of a long-term project. The stage of completion is measured by comparing actual costs incurred
in a period with total estimated costs to be incurred in all periods.
Period costs Costs that cannot be traced to specific products and are expensed in the period incurred.
Periodicity (time periods) assumption An assumption of the accountant that an entity's life can be
divided into time periods for reporting its economic activities.
Predictive value A qualitative characteristic that information has when it improves users' abilities to
predict outcomes of events.
Product costs Costs incurred in the acquisition or manufacture of goods. Product costs are accounted for as
if they were attached to the goods, with the result that they are charged to expense when the goods are sold.
Qualitative characteristics Characteristics that accounting information should possess to be useful in
decision making.
Realization principle A principle that directs that revenue is recognized only after the seller acquires the
right to receive payment from the buyer.
Relevance A qualitative characteristic requiring that information be pertinent to or affect a decision.
Reliability A qualitative characteristic requiring that information faithfully depict for users what it purports
to represent.
Representational faithfulness A qualitative characteristic requiring that accounting statements on
economic activity correspond to the actual underlying activity.
Revenue recognition principle The principle that revenues should be earned and realized before they are
recognized (recorded).
Stable dollar assumption An assumption that the dollar is a reasonably stable unit of measurement.

Accounting Principles: A Business Perspective 223 A Global Text