Identify the following characteristics of useful accounting information as being a component of either Relevant (R) or Reliable (L). (: Refer to Exhibit B.1.)

1. Timeliness 

2. Verifiable 

3. Representational Faithfulness 

4. Predictive Value 

5. Feedback Value 

6. Neutrality

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The objective of financial reporting is to provide useful accounting information to decision makers. Qualitative Characteristics of Accounting Information To be useful to decision makers, accounting information must be: 1. Relevant a. Predictive Value (helps with forecasts) b. Feedback Value (corrects or confirms forecasts) c. Timely (available when needed) 2. Reliable a. Verifiable (can be verified by an independent party) b. Representational Faithfulness (reports what happened) c. Neutrality (information is not biased) 3. Comparable (Different companies use similar accounting principles and methods) 4. Consistency (Same company uses the same accounting principles and methods each year) Assumptions 1. Business entity (business is accounted for separately from its owner and other business entities) 2. Periodicity (the life of a company can be divided up into smaller reportable time periods) 3. Going Concern (entity will continue operating instead of being closed or sold) 4. Monetary Unit (transactions expressed in monetary units) Principles 1. Cost (accounting information is based on cash or equal-to-cash basis) 2. Matching (expenses are recorded as incurred to generate revenues) 3. Revenue Recognition (revenue recorded when earned and realizable) 4. Full Disclosure (any information that can influence the judgment of a decision maker is reported) Exhibit B.1 Elements of Useful Accounting Information Constraints 1. Cost-benefit (benefits to accounting information users is greater than the cost to prepare it) 2. Materiality (transactions too small to make an impact on a decision maker are recorded in the most cost-beneficial way) 3. Conservatism (select accounting methods that are least likely to overstate assets and income)