Question

In: Finance

Which of the following statements is CORRECT? Select one: a. Even if companies are required to...

Which of the following statements is CORRECT?

Select one:

a. Even if companies are required to follow GAAP, two firms in exactly the same operating situation might not have exactly the same financial statement.

b. If a firm follows generally accepted accounting principles (GAAP), then its reported net income will be identical to its reported net cash flow.

c. The balance sheet shows us the firm’s financial situation over a period of time.

d. The numbers shown on balance sheets generally represent market costs.

e. The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.

Solutions

Expert Solution

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

a. Even if companies are required to follow GAAP, two firms in exactly the same operating situation might not have exactly the same financial statement.

Reason:

GAAP allows the company to follow different accounting policies depending upon the company's situation. The accounting policy should represent the true and fair view of the companies situation. For example: a company with the same operating situation might use different depreciation methods to account for depreciation which may lead to different financial statements.

Not correct:

b, c,d, e.

Reason:

The balance sheet shows us the firm’s financial situation at a point of time.

The numbers shown on balance sheets generally represent books costs.

The statement of cash flows tells us the cashflow situation from various activates like operating financing and investing.


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