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Chapter 2: Q.2-29Q (page 61)

Question: What are some of the costs of providing accounting information? What are some of the benefits of accounting information? Describe the cost-benefit factors that should be considered when new accounting standards are being proposed.

Short Answer

Expert verified

Answer

Some of the costs of supplying accounting information include: the cost of assembling information, processing, distributing information, and costs of auditing, disclosure as well as potential litigation.

Some of the advantages of accounting information are: higher control of management and availability of capital at a lower cost.

New accounting standards need a demonstration of information that is not easily collected by the accounting systems of most firms.

Step by step solution

01

Meaning of accounting information

Accounting information is defined as the accounting statements processed by way of accounting and bookkeeping. It includes both financial and non-financial data and is utilized by a large body of users such as customers, employees, investors, creditors, and the government.

02

Costs of providing accounting information

Costs of supplying accounting information comprise the cost of gathering as well as processing, distributing, auditing, potential litigation, exposure to competitors, inspection, and evaluation.

03

Some of the benefits of accounting information

Advantages to users comprise higher control of management and obtaining capital at a minimal cost. Users may get more effective information for allotment of resources, tax evaluation, and adjustment of rates.

04

Cost-benefit factors considered when new accounting standards are proposed

New accounting standards need displaying of information that is not easily collected by most firms. Verification should be made to ascertain whether the supplemental costs of supplying the suggested information surpass the additional benefits to be received. Such verification needs an application of judgement as the advantages of the expected information may not be clear cut.

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Most popular questions from this chapter

Question: Describe the major constraint inherent in the presentation of accounting information.

Explain how you would decide whether to record each of the following expenditures as an asset or an expense. Assume all items are material.

a) Legal fees paid in connection with the purchase of land are \(1,500.

b) Eduardo, Inc. paves the driveway leading to the office building at a cost of \)21,000.

c) A meat market purchases a meat-grinding machine at a cost of \(3,500.

d) On June 30, Monroe and Meno, medical doctors, pay 6 months' office rent to cover the month of July and the next 5 months.

e) Smith's Hardware Company pays \)9,000 in wages to laborers for construction on a building to be used in the business.

f) Alvarez's Florists pays wages of $2,100 for the month an employee who serves as driver of their delivery truck.

Identify which basic principle of accounting is best described in each item below.(a) Norfolk Southern Corporation reports revenue in its income statement when the performance obligation is satisfied instead of when the cash is collected.(b) Yahoo! recognizes depreciation expense for a machine over the 2-year period during which that machine helps the company earn revenue.(c) Oracle Corporation reports information about pending lawsuits in the notes to its financial statements.(d) Gap, Inc. reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair value is greater.

(Assumptions, Principles, and Constraint) Presented below are the assumptions, principles, and constraints used in this chapter.

1. Economic entity assumption 6. Measurement principle (fair value)2. Going concern assumption 7. Expense recognition principle3. Monetary unit assumption 8. Full disclosure principle4. Periodicity assumption 9. Cost constraint5. Measurement principle (historical cost) 10. Revenue recognition principle

Instructions

Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once

.(a) Allocates expenses to revenues in the proper period.

(b) Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.)

(c) Ensures that all relevant financial information is reported.

(d) Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.)

(e) Indicates that personal and business record keeping should be separately maintained.(f) Separates financial information into time periods for reporting purposes.

(g) Assumes that the dollar is the 鈥渕easuring stick鈥� used to report on financial performance.

What is the primary objective of financial reporting?

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