Question 1

The quality of accounting information that allows a user to compare two or more accounting periods for a single company is known as consistency.

Accepted Answer

Consistency is the quality of accounting information that allows for comparison between accounting periods of a single company.

Question 2

You are comparing three companies that use different depreciation methods. Which of the following would help you the most in making a comparison of the companies?
A) The average earnings per share for the quarter.
B) Prospective cash receipts.
C) Claims to resources.
D) Disclosure of accounting policies.

Accepted Answer

Disclosure of accounting policies would provide information on the depreciation methods used by each company, enabling a more accurate comparison of their financial statements. The other options do not directly relate to depreciation methods and therefore would not be as helpful in making this comparison.

Question 3

The quality of accounting information that makes it comprehensible to those willing to spend the necessary time is consistency.

Accepted Answer

The quality of accounting information that makes it comprehensible to those willing to spend the necessary time is clarity, not consistency. Consistency is the quality of accounting information that ensures that the same accounting methods are used over time for similar items.

Question 4

The lack of a common depreciation method makes it impossible to compare the performance companies using different methods.

Accepted Answer

Different depreciation methods (straight-line, declining balance, etc.) impact the timing of expense recognition, but adjustments and standardized financial ratios allow analysts to compare the performance of companies using different methods.

Question 5

There is a standard threshold for materiality set by the Financial Accounting Standards Board for all companies.

Accepted Answer

Materiality is a concept that is applied based on the judgment of the entity's management and auditors, considering the specific circumstances of the entity. The Financial Accounting Standards Board (FASB) provides guidance on the concept of materiality but does not set a uniform threshold for all companies.

Question 6

Which of the following are generally supplementary information required by GAAP concerning the accounting treatments used by a company?
A) A Year-End Worksheet
B) Management's Discussion and Analysis
C) The Report of Independent Accountants
D) Notes to the Consolidated Financial Statements

Accepted Answer

GAAP requires companies to provide additional information through notes to the consolidated financial statements. These notes explain the accounting policies and methods used by the company and provide further details on specific items on the financial statements. A year-end worksheet, management's discussion and analysis, and the report of independent accountants may be helpful in providing context and understanding the financial statements, but they are not specifically required by GAAP.

Question 7

The amount of a transaction may be immaterial by company standards but still be considered significant by financial statement users.

Accepted Answer

The materiality of a transaction depends on the context, and what may be immaterial to a company may still be significant to financial statement users. Materiality is a matter of professional judgment, and companies must consider both quantitative and qualitative factors in determining materiality.

Quiz 1: Accounting As a Form of Communication

The quality of accounting information that allows a user to compare two or more accounting periods for a single company is known as consistency.

You are comparing three companies that use different depreciation methods. Which of the following would help you the most in making a comparison of the companies?

The quality of accounting information that makes it comprehensible to those willing to spend the necessary time is consistency.

The lack of a common depreciation method makes it impossible to compare the performance companies using different methods.

There is a standard threshold for materiality set by the Financial Accounting Standards Board for all companies.

Which of the following are generally supplementary information required by GAAP concerning the accounting treatments used by a company?

The amount of a transaction may be immaterial by company standards but still be considered significant by financial statement users.