Knowledgeable Users of Financial Statements Recognize That the Numbers Reported

question 50

Essay

Knowledgeable users of financial statements recognize that the numbers reported in a company's financial statements depend on the accounting policies used to generate the numbers.Various choices of accounting policies exist,such as LIFO vs.FIFO for inventory costing and straight-line vs.double-declining balance for depreciation.APB Opinion No.22 requires that a company disclose the accounting policies used to ensure that statement users have the information they need to make sound decisions.
What problems arise from the large variety of accounting choices available?

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Definitions:

Sensation

The process by which our sensory receptors and nervous system receive and represent stimulus energies from our environment.

Average Threshold

The point at which a stimulus is of sufficient intensity to begin to produce an effect or to elicit a response.

Human Vision

The ability of the human eye to detect and interpret surroundings by processing information contained in visible light.

Candle Flame

The visible part of a candle light, produced by the hot, glowing combustion of the candle wick and wax.