Which of the following statements is CORRECT?
A)The focal point of the income statement is the cash account, because that account cannot be manipulated by "accounting tricks."
B)The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow Generally Accepted Accounting Principles (GAAP).
C)The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission (SEC).
D)If a firm follows Generally Accepted Accounting Principles (GAAP), then its reported net income will be identical to its reported net cash flow.
E)The income statement for a given year, say 2007, is designed to give us an idea of how much the firm earned during that year.

Question

Quizplus · Accepted Answer

Option E is correct because the income statement shows how much the company has earned during a specific period, usually annually. Option A is incorrect because the focal point of the income statement is not the cash account, and accounting tricks can manipulate the cash account. Option B is incorrect because different accounting procedures could create different incomes even when identical firms follow Generally Accepted Accounting Principles (GAAP). Option C is incorrect because publicly owned firms may have different incomes because of different allowable procedures. Option D is incorrect because GAAP does not dictate a direct correspondence between net income and net cash flow.

Which of the Following Statements Is CORRECT