Firms That Compile Financial Statements According to GAAP

question 91

Multiple Choice

Firms that compile financial statements according to GAAP:

• A)record income and expenses at the time they affect the firm's cash flows.
• B)have no discretion over the timing of recording either revenue or expense items.
• C)must record all expenses when incurred.
• D)can still manipulate their earnings to some degree.
• E)record both income and expenses as soon as the amount for each can be ascertained.

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Definitions:

Net Cash

The difference between a company's total cash inflows and outflows over a specific period.

Operating Activities

Transactions and events that affect a company's net income, related to its primary business operations.

Financing Activities

These activities generate cash inflows and outflows related to borrowing from and repaying principal to creditors and completing transactions with the company’s owners, such as selling or repurchasing shares of common stock and paying dividends.

Common Stock

A type of equity security that represents ownership in a corporation, giving the holder a share of the corporation's profits and assets.