For external-reporting purposes, generally accepted accounting principles require that net income be based on:
A)absorption costing.
B)variable costing.
C)product costing.
D)throughput costing.
E)activity-based costing.

Question

Quizplus · Accepted Answer

Generally accepted accounting principles (GAAP) require companies to use absorption costing for external reporting purposes. This is because absorption costing includes all manufacturing costs (direct and indirect) in the cost of the product, which is necessary for financial reporting purposes. Variable costing, throughput costing, and activity-based costing are used for internal management decision-making and may not provide a complete picture of the cost of goods sold to external users such as investors and creditors.

For External-Reporting Purposes, Generally Accepted Accounting Principles Require That Net