What Is the Main Reason That It Is Necessary for Public

question 4

Multiple Choice

What is the main reason that it is necessary for public companies to follow the rules and format set out in the Generally Accepted Accounting Principles (GAAP) when creating financial statements?

• A)It is easier to find specific information in such a report if it is laid out in a clear and consistent manner.
• B)It ensures that information on the performance of private companies is readily available to the public.
• C)It ensures that important information is not omitted and superfluous information is not included.
• D)It makes it easier to compare the financial results of different firms.
• E)To make sure they satisfy the auditor.

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Definitions:

Economies of Scale

The cost advantage that arises with increased output of a product, where costs per unit decrease due to efficiencies gained from larger scale operations.

Long-Run Average Cost Curve

A curve showing the lowest possible cost at which a firm can produce any given level of output in the long run when all inputs are variable.

Downward Sloping

Describes a line or curve on a graph that shows a decrease in value as it moves from left to right, often used in economics to describe how changes in price affect demand.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.