Question

Use the following statements to answer the question below:

1. Two firms experiencing exactly the same economic events could report different net income while both correctly following generally accepted accounting principles.

2. Only finance and accounting professionals need to understand accounting principles.

3. Cash flow is what matters to a firm and its investors; therefore, the statement of cash flows is the only financial statement that investors need consider.

4. The book value of a firm’s equity is an accurate representation of fair value.

5. Financial statements present a complete and accurate portrayal of firm performance.

                

Which of the above statements are true?

1. Statements 1
2. Statements 1, 3, 5
3. Statements 3, 4, 5
4. Statement   1, 2, 3, 4, 5

Answer 1

Use the following statements to answer the question below:

TRUE STATEMENT

1. Two firms experiencing exactly the same economic events could report different net income while both correctly following generally accepted accounting principles.

Explanation:

There can be variations in accounting that are permitted under GAAP.

FALSE STATEMENTS;

2. Only finance and accounting professionals need to understand accounting principles.there.

Others are also required to understand accounting principles if they are to interpret the financial statements.

3. Cash flow is what matters to a firm and its investors; therefore, the statement of cash flows is the only financial statement that investors need consider.

The income statement and balance sheet are also relevant.

4. The book value of a firm’s equity is an accurate representation of fair value.

5. Financial statements present a complete and accurate portrayal of firm performance.

The financial statement gives only the financial performance. Hence, it cannot be complete.