Question

1. Why do most companies adhere to GAAP for their basic internal financial statements? a. GAAP is required by law for publicly held companies. b. To use GAAP and another system of reporting would be too costly for most companies. c. Accountants are required by their code of ethics to use GAAP accounting. d. Accrual accounting provides a uniform method to measure an organization’s financial performance.

Answer 1

The most companies adhere to GAAP for their basic internal financial statements because accrual accounting provides a uniform method to measure an organization’s financial performance.

Option: D

Explanation:

The corporations are accountable for reporting on their cash flows, profit-making activities and general financial conditions as per Generally Accepted Accounting Principles (GAAP). It contains the three main financial declarations: the declaration of income, the balance sheet, the declaration of cash flow. The balance sheet of an enterprise lists resources and places them equivalent to the liabilities and equity of the investor. Those three sections show what an organization owns and how it funds its activities.