Chapter 3
The Accounting Framework
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• The cash account is comprised of two sub-accounts: cash related to the business and personal
cash savings of a few of the shareholders.
• Purchases have all been valued at fair market value at the year-end date.
• Regarding expenses, there are numerous invoices which did not match the cost amounts
reported in the accounting records.The amounts on the invoices are significantly greater than
the amounts in the accounting records.
• The company’s income statement has shown a significant net loss for the past three years.
See Appendix I for solutions.
Part 1
Which of the four fundamental characteristics of financial information has HRI failed to apply?
Explain.
