Which of the Following Statements Concerning the Principle of Accounting

question 71

Multiple Choice

Which of the following statements concerning the principle of accounting conservatism is true?

• A) According to the GAAP principle of conservatism, financial statements should report expenses and losses in the earliest reasonable year.
• B) The GAAP principle of conservatism tries to prevent the overstatement of book income and the understatement of taxable income.
• C) According to the tax law principle of conservatism, taxpayers should deduct expenses and losses in the earliest reasonable year.
• D) According to the tax law principle of conservatism, taxpayers should deduct expenses and losses in the same year as they are reported on the taxpayers' financial statements.

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Definitions:

Sales

Represents the total income generated by a company from selling goods or services before any expenses are subtracted.

Minimum Required Rate

The lowest return rate that an investment must offer to be considered viable or acceptable.

Residual Income

The income that remains after deducting all costs, including the cost of capital.

Turnover

The total sales generated by a business within a specific period. It can also refer to the rate at which employees leave a company and are replaced.