A company has chosen accounting policies that result in maximizing its net income.Which of the following is not a reason for doing this?
A)To comply with loan agreement maintenance tests
B)For favourable performance evaluation
C)For cash flow prediction
D)To attract new investors

Question

Quizplus · Accepted Answer

Maximizing net income does not necessarily result in accurate cash flow prediction. Cash flow is affected by non-cash transactions and changes in working capital, which may not be reflected in net income. Therefore, selecting accounting policies to maximize net income may not result in accurate cash flow prediction. A, B, and D are all valid reasons for a company to choose accounting policies that increase its net income.

A Company Has Chosen Accounting Policies That Result in Maximizing