ACC 100 Chapter Notes - Chapter 2: Balance Sheet, Accounts Receivable, Statement Of Changes In Equity

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Verifiability information is verifiable when we can make sure that it is free from error for example, by looking up the cost paid for an asset in a contract or an invoice. Representational faithfulness information is representationally faithful when it corresponds to an actual event such as when the purchase of land corresponds to a transaction in the company s records. Conservatism information that is uncertain should be presented so that assets and revenues are not overstated while liabilities and expenses are not understated. Care is needed here to avoid the creation of bias as a result of being conservative. Various accounting rules are based on the concept of conservatism. For example, inventory held for resale is reported on the balance sheet at the lower of cost and market value. In chapter 6 we shall more fully explore the lower of cost and market rule as it pertains to inventory.

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