In preparing financial statements with cash flow prediction as a major objective,a company should choose an accounting policy that ________.
A)allows a cost to be capitalized
B)allows a cost to be expensed
C)results in income-smoothing
D)maximizes net income

Question

Quizplus · Accepted Answer

Choosing an accounting policy that allows a cost to be expensed (rather than capitalized) will result in higher expenses and lower net income in the current period, which will provide a more accurate picture of cash flows. This will help to ensure that the financial statements with cash flow prediction as a major objective are reliable and informative. Allowing a cost to be capitalized would have the opposite effect, resulting in lower expenses and higher net income, which could distort the cash flow prediction. Income-smoothing and maximizing net income are not appropriate objectives when preparing financial statements with cash flow prediction as a major objective.

In Preparing Financial Statements with Cash Flow Prediction as a Major