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 2011, is designed to give us an idea of how much the firm earned during that year.

Question

Quizplus · Accepted Answer

The income statement is designed to show the firm's earnings during a specific period, such as a year. It does not necessarily reflect the cash account or guarantee that reported income will be identical for two otherwise identical firms due to alternative accounting procedures or SEC allowances. Reported net income may differ from reported cash flow even when following GAAP.

Which of the Following Statements Is CORRECT