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Accounting Essentials: Making Information Relevant & Reliable

Chapter 2, Problem 4

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QUESTION:

Briefly describe the two fundamental qualities of useful accounting information.

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QUESTION:

Briefly describe the two fundamental qualities of useful accounting information.

ANSWER:

Step 1 of 2

Primary qualitative characteristics:

The primary qualities of useful accounting information are:

1. Relevance:

The capability of an information system to make a difference in a decision is called relevance, and it is irrelevant when information has no bearing on a decision.

Accounting information is said to have relevance if it has the following characteristics.

(a) Predictive value: When a company's reported earnings can predict its future earnings, they are said to have predictive value.

(b) Feedback value: When the Accounting information helps users confirm or correct prior expectations, it is said to have Feedback value.

(c) Timeliness: Accounting information possesses timeliness if it is available to decision-makers before it loses its capacity to influence their decisions.

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Accounting Essentials: Making Information Relevant & Reliable
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Explore the pillars of accounting information: Relevance and Reliability. Understand sub-components like predictive value, timeliness, and verifiability. Discover how these qualities enhance decision-making in finance


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