Chapter 2 Accounting Concepts and Principles QUESTIONS 1. One characteristic of useful accounting information is understandability. Understandable to whom? 2. Distinguish between the qualities of relevance and faithful presentation. 3. Does faithful presentation imply absolute accuracy? Explain. 4. Define comparability. 5. Why is it so difficult to measure the cost and the benefit of accounting information? 6. For each item below, indicate to which category of elements of financial statements it belongs. (a) Retained earnings (b) Sales (c) Additional paid-in capital (d) Inventory (e) Depreciation (f) Dividends (g) Gain on sale of investment (h)Interest payable (i)Loss on sale of equipment (j) Issuance of common stock 7. What three elements are contained in a balance sheet? 8. What are the two measurement methods of performance that may be used to determine income? How do they differ? 9. Identify the criteria that an item must meet to qualify for recognition. 10. Identify and describe four different measurement bases.