Posts by accountinator

Companies record gifts cards sold as liabilities, because ultimately they will need to redeem the gift cards and provide products or services to customers. Here is a link to my article about revenue recognition for gift cards in Journal of Accountancy: Lost and found.
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Accounting information is material if its omission or misstatement would mislead investors. In other words, if there’s a piece of information that investors need to know, then that information is material – it makes a difference. Information can be material in size or importance. In size, materiality is all about the amount. A large amount of […]
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In accounting, information has confirmatory value when it helps users to confirm or adjust prior expectations. But why is confirmatory value an important attribute for accounting information to have? The importance of confirmatory value People read accounting financial statements in order to create predictions about the future. They want to predict future dividends and that the company […]
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Accounting information is relevant (“accounting relevance”) when it is capable of making a difference in a decision. Suppose that you’re trying to decide what to eat for dinner: A hamburger? Or a salad? What information is relevant to your decision? The number of calories? The price of each meal, perhaps? Do you have the food ready […]
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In accounting, information has predictive value when you can use it to form expectations about the future. Using the future to predict the past How should investors make decisions about loaning money to a company, or investing in its stock? High quality accounting information helps investors to make these decisions. When you think about it, investors really want […]
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The economic entity assumption is one of four assumptions underlying financial statements. It says that you can identify economic activity with a particular unit of accountability. Put another way, the economic entity assumptions says that certain transactions are inside a business, while other transactions are outside of the business. Suppose that you run a candy […]
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