Financial statements prepared using generally accepted accounting principles:
A) use historical costs and are not adjusted for the effects of increasing prices.
B) use historical costs and are adjusted for the effects of increasing prices.
C) use market-based costs and are adjusted for the effects of increasing prices.
D) use market-based costs and are not adjusted for the effects of decreasing prices.

Question

Quizplus · Accepted Answer

Financial statements prepared using generally accepted accounting principles primarily use historical costs, which means that assets and liabilities are recorded at their original cost when they were acquired or incurred. Additionally, these statements are not adjusted for the effects of increasing prices, also known as inflation. This is because it is difficult to accurately measure the impact of inflation on individual items or transactions. However, some companies may choose to supplement their financial statements with additional disclosures or adjusted financial measures to provide insights into the impact of inflation.

Financial Statements Prepared Using Generally Accepted Accounting Principles