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The reliability principle requires that accounting information be dependable--free from significant error and bias. Users of acc
The reliability principle requires that accounting information be dependable--free from significant error and bias. Users of acc
admin
2011-01-26
43
问题
The reliability principle requires that accounting information be dependable--free from significant error and bias. Users of accounting information rely on its truthfulness. To be reliable, information must be verifiable by people outside the business; Financial statement users may consider information reliable if independent experts would agree that the information is based on objective and honest measurement.
Consider the error in a company’s failure to accrue interest revenue at the end of an accounting period. This error results in understated interest revenue and understated net income. Clearly, this company’s accounting information is unreliable.
Biased information -- data prepared from a particular viewpoint and not based on objective facts -- is also unreliable. Suppose a company purchased inventory for $ 25. 000. At the end of the accounting period, the inventory had declined in value and can be replaced for $ 20 000. Under the lower of cost or market rule, the company must record a $ 5 000 loss for the decrease in the inventory’s value. Company management may believes that the appropriate value for the inventory is $ 22 000, but that amount is only an opinion. If management reports the $ 22 000 figure, total assets and owner’s equity will be overstated on the balance sheet. Income will be overstated on the income statement.
To establish a reliable figure for the inventory’s value, management could get a current price list from the inventory supplier or call in an outside professional appraiser to revalue the inventory. Evidence obtained from outside the company leads to reliable, verifiable information. The reliability principle applies to all financial accounting information --from assets to owner’s equity on the balance sheet and from revenue to net income on the income statement.
What would happen if the company in the example recorded the loss of $ 5 000 on the accounting statement?
选项
A、The company’s inventory would decline in value.
B、The total assets would be reported twice on the balance sheet.
C、The owner’s equity will be overstated on the income statement.
D、The accounting information is reliable and the total assets and ’owner’s equity will be stated correctly on the balance sheet.
答案
D
解析
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0
初级(银行综合类)
原金融专业英语(FECT)
金融英语(FECT)
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