Income Statements Prepared Using Which Basis Provide the Most Information

question 20

Multiple Choice

Income statements prepared using which basis provide the most information about future cash flows?

• A)Actual basis
• B)Cash basis
• C)Historical basis
• D)Accrual basis

---

Definitions:

Lemon Laws

Statutes designed to protect consumers from purchasing defective vehicles that fail to meet quality and performance standards.

Negative Externalities

Unintended and adverse side effects suffered by third parties or the environment as a result of economic activities.

Direct Controls

Government policies that directly constrain activities that generate negative externalities. Examples include maximum emissions limits for factory smokestacks and laws mandating the proper disposal of toxic wastes.

Economic Efficiency

A situation where resources are allocated in a way that maximizes the net benefit to society or achieves the desired output with the least waste.