Which of the following statements is CORRECT?
A) The focal point of the income statement is the cash account, because that account cannot be manipulated by "accounting tricks."
B) The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow generally accepted accounting principles (GAAP).
C) 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).
D) If a firm follows generally accepted accounting principles (GAAP), then its reported net income will be identical to its reported cash flow.
E) The income statement for a given year, say 2012, is designed to give us an idea of how much the firm earned during that year.

Question

Quizplus · Accepted Answer

The income statement is a financial statement that summarizes a company's revenues and expenses for a specific period, such as a year. Its main purpose is to show how much the company earned (or lost) during that period. The other statements (such as the balance sheet and cash flow statement) provide additional information about the company's financial position and cash flows, but the income statement is focused on earnings. Choices A, B, C, and D are incorrect because they are either false or incomplete statements about accounting procedures and principles.

Which of the Following Statements Is CORRECT