Which of the Following Statements Is CORRECT

question 88

Multiple Choice

Which of the following statements is CORRECT?

• A) The focal point of the income statement is the cash account, because that account cannot be manipulated by "accounting tricks."
• B) The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow generally accepted accounting principles (GAAP).
• C) The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission (SEC).
• D) If a firm follows generally accepted accounting principles (GAAP), then its reported net income will be identical to its reported cash flow.
• E) The income statement for a given year, say 2008, is designed to give us an idea of how much the firm earned during that year.

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Definitions:

Accounting Time Periods

The specific intervals or time frames for which financial information is reported, such as monthly, quarterly, or annually.

Interim Periods

Shorter reporting periods within a fiscal year, such as quarters or months, used by companies to provide timely financial information.

Cash Basis

An accounting method where revenues and expenses are recognized only when cash is received or paid, respectively.

Accrual Basis

An accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when the cash transactions occur.