The Standard Financial Statements Prepared by Accountants Have to Be

question 12

Multiple Choice

The standard financial statements prepared by accountants have to be modified for managerial purposes. Related to these modifications, which of the following statements is correct?

• A) The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.
• B) The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that is focused on cash flows and the operations of individual units.
• C) The standard statements provide useful information on the firm's individual operating units, but management needs more information on the firm's overall operations than the standard statements provide.
• D) The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP.

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Definitions:

Cheques

A document that is written, dated, and signed, which gives an absolute command to a bank to pay a specific amount of money to the recipient.

Bank Clearing Time

The process and time required for checks and other transactions to be processed through a bank or clearinghouse and the funds to become available.

Processing Time

The time required to complete a particular process, such as manufacturing or data processing.

Weighted Average Delay

The mean delay time, taking into account the importance or weight of each contributing factor to the overall delay.