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ACC 100 Study Guide - Midterm Guide: Financial Statement

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lavendermole636
12 May 2016
School
Ryerson University
Department
Accounting
Course
ACC 100
Professor
Else Grech

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Document Summary

Qualitative characteristics: qualities that stakeholders want financial information to have so they can use the information for decision making. Let"s look at each of the qualities that stakeholders want. Truthful, meaning it is complete, free of error, and neutral (unbiased). Applicable or pertinent to your decision making, helps you predict the future and/or confirm decisions you made in the past. Can compare the same business from year to year. Or between two different businesses in the same industry. Anyone looking at the information would determine similar amounts. Information is provided quickly (as old information is less useful). Group and present information so it is clear and concise. In order to use information to make decisions it is important to understand the quality of that information (how trustworthy it is). If information does not have these qualitative characteristics then it may mislead the stakeholders, causing them to make wrong decisions. Assumptions specify how accountants must record, measure, and report information.

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Related Questions

Tactical decision making

Tactical decision making means choosing among alternatives withan immediate or limited end in view. For example, a company mayaccept a special order for less than the normal selling price touse idle capacity. Tactical decisions tend to be short-runin nature; however, it should be emphasized that short-rundecisions often have long-run consequences. A general tacticaldecision-making model is outlined here.

1. Recognize and define theproblem.
2. Identify possible alternativesolutions to the problem, and eliminate any unfeasiblealternatives.
3. Identify the costs and benefitsassociated with each feasible alternative. Eliminate the costs andbenefits that are not relevant to the decision.
4. Compare the relevant costsand benefits for each alternative.
5. Assess qualitative factors.
6. Select the alternative with thegreatest overall benefit.

Identifying and comparing relevant costs and revenues is theheart of the tactical decision model. Relevant costs (revenues) arefuture costs (revenues) that differ across alternatives. (Revenuesare treated in the same way as costs, so we will simplify thediscussion by referring to costs.) All decisions relate to thefuture; so, only future costs can be relevant. In addition, thecost must differ from one alternative to another. If a future costis the same for more than one alternative, it has no effect on thedecision. Such a cost is an irrelevant cost.

Assume that Reeves Company is considering accepting a specialorder for $25 per unit when the normal selling price is $30 perunit. Reeves has enough excess capacity to make the order withoutdisplacing normal sales. The alternatives facing Reeves Company are(Select "Yes" for the statements that are applicable and "No" forthe items that do not apply):

Accept the special order. - Select your answer -YesNoItem1
Reject the special order. - Select your answer -YesNoItem2
Sell normal sales for $25 perunit. - Select your answer -YesNoItem3

Choose which of the following are relevant in deciding whetheror not to accept the special order. (Select "Yes" for thestatements that are applicable and "No" for the items that do notapply)

$25 price. - Select your answer -YesNoItem4
$30 normal price. - Select your answer -YesNoItem5
Variable cost of making the unitsin the special order. - Select your answer -YesNoItem6
Depreciation on factory equipmentused in making the special order units. - Select your answer -YesNoItem7
Increased property taxes on thefactory building which are due while the special order would bemade. - Select your answer -YesNoItem8

While cost and revenue information is important, otherinformation may be needed to make an informed decision. Thesenon-financial factors are termed qualitative and are often relevantin decision making. For example, in deciding whether to make acomponent in-house or purchase it from an outside supplier, thecompany may consider any difference in quality or in responsivenessto the company's production schedules.