Question

Which of the following statements is CORRECT? a. The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow generally accepted accounting principles (GAAP). b. 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). c. If a firm follows generally accepted accounting principles (GAAP), then its reported net income will be identical to its reported cash flow. d. The income statement for a given year is designed to give us an idea of how much the firm earned during that year. e. The focal point of the income statement is the cash account because that account cannot be manipulated by "accounting tricks."

Answer 1

Answer: The correct answer is "d. The income statement for a given year is designed to give us an idea of how much the firm earned during that year.".

Explanation: The statement "d. The income statement for a given year is designed to give us an idea of how much the firm earned during that year." is CORRECT because In accounting, the income statement is a financial statement that shows in an orderly and detailed way how the result of the year was obtained during a given period.

This financial statement is closed, since it covers a period during which the costs and expenses that gave rise to its income must be perfectly identified. Therefore, it must be perfectly applied at the beginning of the accounting period so that the information presented is useful and reliable for decision making.