Which of the Following Statements Is Most Correct

question 37

Multiple Choice

Which of the following statements is most correct?

• A) Cash flows and accounting profit are not at all related since no common elements are used in the calculation of either individual measure.
• B) Accounting profits are more important than free cash flow.
• C) High inflation can seriously distort firms' balance sheets, and since inflation also affects depreciation and inventory costs, profits can also be affected.
• D) When an action is taken at one point in time, but its full effects cannot be accurately measured until later, this has the potential to affect the firm's financial statements. However, as long as the firm keeps the same standard accounting period this timing problem can be avoided.
• E) None of the statements above is correct.