DISCUSSION QUESTIONS:
1. Three expense recognition methods (associating cause and effect, systematic and rational allocation, and immediate recognition) were discussed in the text under the expense recognition principle. Indicate the basic nature of each of these expense recognition methods and give two examples of each.
2. How is materiality (or immateriality) related to the proper presentation of financial statements?
3. What factors and measures should be considered in assessing the materiality of a misstatement in the presentation of a financial statement?
4. Distinguish between cash-basis accounting and accrual-basis accounting. Why is accrual-basis accounting acceptable for most businesses and the cash-basis unacceptable in the preparation of an income statement and a balance sheet?
5. What are interim reports?
6. Why are balance sheets often not provided with interim data?
7. Distinguish between ratio analysis and percentage analysis relative to the interpretation of financial statements. What is the value of these two types of analyses?