Financial Reporting Quiz 2

What are the fundamental qualitative characteristics of financial information?

• Relevance and faithful representation

• Comparability and verifiability

• Timeliness and understandability

• Cost constraint

What are the three characteristics of a perfectly faithful representation?

• Complete, neutral, free from error

• Relevant, comparable, verifiable

• Timely, understandable, cost-effective

• Accurate, detailed, consistent

What is the definition of an asset?

• A present obligation of an entity

• A resource controlled by an entity

• A residual interest in an entity

• An outflow of resources

What is a liability defined as?

• A resource controlled by an entity

• A present obligation of an entity

• An outflow of resources

• A balance sheet value

What is equity?

• The value of all assets

• The residual interest in an entity

• The total liabilities of an entity

• The income generated by an entity

What is the definition of income?

• The total expenses of an entity

• The profit or loss of an entity

• Income arising in the course of ordinary activities

• The residual interest in an entity

What are expenses?

• Outflows of assets

• Increases in equity

• Gains from sales

• Income from investments

What is the purpose of a balance sheet?

• To provide a cash flow statement

• To summarize the income and expenses over a period

• To show the financial position of an entity at a specific point in time

• To report the equity of an entity

What does depreciation represent in financial accounting?

• An increase in the value of an asset

• A decrease in the value of an asset over time

• A method of calculating income tax

• A type of financial investment

What is the primary purpose of an audit?

• To increase the profitability of an entity

• To prepare financial statements

• To provide assurance on the accuracy of financial statements

• To manage an entity's finances