A Change in Accounting Policy Should Be Made Only

question 10

Multiple Choice

A change in accounting policy should be made only:

• A) If required by tax law.
• B) If the change will result in a more appropriate presentation of events or transactions in the financial statements of the entity.
• C) If it allows the entity to improve its income.
• D) All of these

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Definitions:

Income Statement

A document detailing a firm's income, expenditures, and profit during a certain timeframe.

Operating Leverage

refers to the extent to which a firm utilizes fixed costs in its cost structure, influencing how changes in sales volume affect operating income.

Net Operating Income

This is a company's income after all operating expenses, excluding financial expenses and taxes, have been deducted from total revenue.

Operating Leverage

The degree to which a company's net income can be affected by a change in sales, influenced by the proportion of fixed costs in a company's cost structure.