The Basic Purpose of Generally Accepted Accounting Principles Is To

question 39

Multiple Choice

The basic purpose of generally accepted accounting principles is to:

• A)Minimize the possibility of a business becoming insolvent.
• B)Provide a framework for financial reporting that is understood by both the preparers and the users of financial statements.
• C)Ensure that financial statements include the type of information that is best suited to every type of business decision.
• D)Eliminate the need for professional judgment in preparing financial statements.

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Definitions:

Temporal Discounting

The tendency for people to value immediate rewards more highly than future rewards, often leading to impulsive decisions.

Risk Aversion

The tendency to prefer certainty over uncertainty, characterized by a preference for safe options over risky ones.

Certainty Effect

The psychological phenomenon where people tend to give greater weight to outcomes that are certain, compared to outcomes that are probable.

Liquidate Resources

Refers to the process of converting assets or resources into cash or cash equivalents by selling them in the market.