Briefly Explain the Meaning of Each of the Four Key

question 14

Essay

Briefly explain the meaning of each of the four key qualitative characteristics of accounting information: relevance, reliability, comparability and understandability. Also explain how the cost/benefit test acts as a limit on the application of these characteristics.

---

Definitions:

Capital Expenditures

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment to improve long-term operations.

Indirect Method

A way of reporting cash flows from operating activities in the cash flow statement by starting with net income and adjusting for non-cash transactions.

Accounts Receivable

Outstanding payments due to a company from its customers for delivered goods or services.

Accounts Payable

Liabilities or the amount of money owed by a company to its creditors and suppliers for goods and services purchased on credit.