The Principle of Faithful Representation

question 71

Multiple Choice

The principle of faithful representation

• A) Requires that information be complete, neutral and free from error, so assets and income are not overstated, and liabilities and expenses are not understated
• B) Requires that a company use the same accounting methods period after period
• C) Requires that revenues and costs be reported in the period in which they are earned or incurred
• D) Requires that all items of a material nature be included in financial statements
• E) Requires that all inventory items be reported at full cost

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Definitions:

Direct Materials

The raw materials and components that are directly used in the production of a product and can be easily associated with it.

Fabrication Department

A specialized division within a company responsible for the manufacturing and assembly of products or components.

Weighted-Average Method

A technique for calculating the cost of goods sold and remaining stock that uses the mean cost of all available units for sale.

Conversion Cost

The total cost of converting raw materials into finished goods, encompassing both labor and manufacturing overhead expenses.