Accounting Information: Relevance and Key Concepts

• Accounting information should be comparable, relevant, material, understandable, faithfully represented, and timely to be useful

Relevance

• Information must be complete, neutral, and error-free

• Information must be capable of making a difference in a decision and available early enough to help users make decisions

• Accounting information must be prepared to allow comparisons with other companies in the same period

• The balance sheet reports assets, liabilities, and stockholders' equity at a specific date

• The claims of a company's owners include liabilities, assets, and stockholders' equity

• If BANDIT Companies' assets decreased by $200,000 and liabilities increased by $70,000, stockholders' equity increased by $270,000 during the year

• The accounting equation can be expressed as Assets - Liabilities = Equity

• The entity assumption states that an organization stands apart from other organizations and individuals as a separate economic unit

• On December 31, 2024, Bingo's assets totaled $29,461,250

• Bingo's net income for the year ending December 31, 2024, was $4,208,750

• Expenses decrease net income

• Accounts Payable is an example of a liability

• Cash received from customers for services provided is an example of revenue

• The Balance Sheet reports a company's financial position at a specific point in time

• Retained Earnings is a Stockholders' Equity account

• Revenue should be recognized when it is earned, regardless of when cash is received

• The Matching Principle requires expenses to be recognized in the same period as the revenues they help generate

• Under cash-basis accounting, revenues and expenses are recorded when cash is received or paid

• Under accrual-basis accounting, events that change a company's financial statements are recognized in the period they occur rather than when cash is paid or received

• JOHNSON Enterprises sold $5,670,000 of merchandise in 2025

• $3,622,500 was collected immediately in cash, and $2,047,500 was sold on account

• 65% of the sales on account was collected in cash before the end of the period

• $2,677,500 cash was paid related to expenses; $2,735,000 was the result of the net loss under cash-basis accounting for the year

• According to the revenue recognition principle, Faucet should record service revenue on July 24

• FEDEX Delivery Company purchased a two-year insurance policy on August 1, 2024, for $8,450,000

• The balance of prepaid insurance on December 31, 2025, is $2,464,583

• BLIZZARD Industries collected $780,500 in cash for subscriptions from October 1, 2024, through April 30, 2025

• The adjusting entry on December 31, 2024, would credit Unearned Subscription Revenue for $334,500

• Adjusting entries are part of accrual-basis accounting

• LEGOS Crafts had $283,750 of supplies at the beginning of the year and purchased an additional $295,300 of supplies

• There was $197,750 of supplies on hand at the end of the year; therefore, supplies expense reported was $381,300

• An investment of cash by stockholders into the business increases stockholders' equity

• Walgreens Pharmacies pays salaries of $14,000 on Friday for a five-day week

• The adjusting entry needed at the end of the fiscal period ending on a Tuesday is a debit to Salary Expense and credit to Salary Payable for $5,600 each

• Closing entries on the accounting records will result in the temporary accounts having a zero balance

• Assets and liabilities are ordered on the Balance Sheet based on liquidity from most liquid to least liquid

• A single-step income statement would include all revenues and gains under the “Revenues and Gains” heading

• For a new business, the beginning balance of retained earnings equals zero

• The requirement to report accounting information at regular intervals is known as the time-period concept

• LUNA Inc.'s current ratio, with current assets of $70,000 and current liabilities of $35,000, is 2.00

• When analyzing a company's debt ratio, the ratio measures a company’s ability to pay its total liabilities

• PEARSON Financial Services reported retained earnings of $860,000 on December 31, 2023

• Net income for 2024 totaled $330,000, and dividends declared for 2024 were $280,000

• Pearson should report $910,000 on December 31, 2024

• The science that studies ways to build programs and machines that can creatively solve problems in a human-like manner is Artificial Intelligence

• Maximizing net income is not an objective of a system of internal controls

• The best example of a separation of duties control is when the employee that orders inventory cannot access the physical inventory or the inventory accounting records

• Exception reporting is an example of a monitoring (detective) control

• Reasoning is not part of the fraud triangle

• Cash and cash equivalents include certificates of deposit

• A report that explains the differences between a firm's cash balance on its bank statement and its general ledger cash account is a bank reconciliation

• In June 2025, HERSH Ltd deposited a customer’s NSF check and reported it on its June bank reconciliation

• The entry recorded in July related to this item includes a debit to Accounts Receivable and a credit to Cash

• BLIX Grocers Co. deposited a customer’s check for $3,226, but the bank mistakenly credited it for only $2,326

• The company should add $900 to the bank statement balance of cash when preparing that month's bank reconciliation

• On a bank reconciliation, EFT payments to vendors would decrease the balance per book

• HARRIS Enterprises is reconciling its bank account for November

• The cash balance per books is $4,708, per the bank statement is $5,822, and there are outstanding checks for $1,590

• A $680 deposit was placed in the bank's night depository on November 30, and the bank service charge was $20

• A customer’s note receivable collected by the bank was $200, and interest earned on the bank balance was $24

• The adjusted cash balance at the end of November is $4,912

Explore the characteristics of useful accounting information, focusing on relevance, faithful representation, and comparability. Understand the components of the balance sheet and the accounting equation. Review the impact of changes in assets and liabilities on stockholders' equity and the entity assumption.