CFAS - Chapter 6: Identification
CFAS - Chapter 6: Identification
1. Comparability A department store changes 12. Matching An allowance for doubtful accounts is
accounting method every year Principle established.
in order to report a higher net
13. Matching The entity allocates the cost of a patent
income possible under
Principle/Expense to the accounting periods in which it
accounting standards.
Recognition helps to produce the revenue.
2. Comparability/Consistency Users have trouble making Principle
interperiod comparisons when
14. Materiality A large entity decides that whenever an
an entity changes accounting
asset has a cost of less than P10,000,
principles from one year to the
the cost will be charged to expense
next.
even though the asset may benefit
3. Completeness/Standard The entity should always report several accounting periods.
Adequate Disclosure the important details about
15. Materiality The accountant of the entity keeps a
share capital, for example, the
detailed depreciation record on every
number of shares authorized,
asset no matter how small its value.
shares issued, shares in
treasury, subscribed shares and 16. Materiality An entity having 150 accounts payable
par value. list each account among the liabilities in
the statement of financial position
4. Completeness/Standard An entity does not report the
Adequate Disclosure major details about the 17. Prudence An entity follows a policy of recording
shareholders' equity an item as an asset when the entity is in
doubt whether the item is an asset or
5. Conservatism The lower of cost and net
expense of the current period
realizable value is used to
measure inventory. 18. Standard Competition has taken away much of
Adequate the business of an airline. The airline is
6. Conservatism Many users of financial
Disclosure unwilling to report its plans to sell half
statements prefer accounting
of its fleet of aircraft.
principles such as accelerated
depreciation that tend to state 19. Substance over The entity estimates and records interest
income on the "low side". form expense on a 5-year noninterest-bearing
note payable.
7. Faithful Representation The damaged inventory of a
department store is being 20. Systematic and An entity charges the cost of new office
written down. The manager Rational equipment to expense in the year of
bases the writedown on Allocation purchase although the equipment is
subjective opinion in order to expected to help produce revenue for
minimize income tax. many years