What Is the Appropriate Treatment in an Interim Financial Report

question 58

Multiple Choice

What is the appropriate treatment in an interim financial report for variances arising from the use of a standard costing system?

• A) The variances are always ignored for interim reporting.
• B) The variances should always be reflected in gross profit on an interim income statement.
• C) The variances expected to be absorbed by year-end should not be reflected in the interim statement.
• D) The variances should always be reflected in the interim income statement but not the interim balance sheet.
• E) The variances should only be reflected in the interim balance sheet.

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Definitions:

Deposit Expansion Multiplier

A ratio that indicates the potential increase in money supply through the banking system's ability to lend more based on reserves.

Vault Cash

The physical money that banks keep in their vaults as part of their reserves.

Reserve Requirement

The minimum amount of reserves that banks must hold, either in their vaults or on deposit with a central bank, as a regulatory measure intended to ensure bank liquidity.

Open Market Operations

The actions of central banks in purchasing and selling government securities with the aim of regulating the money supply and managing interest rates.