Economic Measures of Divisional Performance in a Diversified Firm Compare

question 35

True/False

Economic measures of divisional performance in a diversified firm compare a division's performance with a firm's cost of capital and these measures increase the potential for gaming, which is generally minimized by accounting measures.

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Definitions:

Transaction

Any event or activity that affects the financial position of a company and can be measured reliably in monetary terms.

Accounts

Records that summarize all the transactions related to a specific financial aspect, such as assets, liabilities, equity, expenses, and income.

Basic Accounting Equation

Assets = Liabilities + Owner’s equity.

Assets

Economic resources owned or controlled by an individual, company, or entity, expected to provide future benefits.