Accounting rules
A) specify the term of exchange, facilitating exchange between strangers.
B) increase the profitability of inventions, encouraging firms to develop new products.
C) provide the public with reliable information about the performance of a firm.
D) increase the risk faced by entrepreneurs.

Question

Quizplus · Accepted Answer

Accounting rules aim to provide reliable information about a firm's performance to the public. This can help investors, lenders, and other stakeholders make informed decisions about whether to invest in, lend to, or transact with a firm. By requiring firms to disclose information about their financial position, results of operations, and cash flows, accounting rules increase transparency and accountability, which can help build trust and confidence in the market.

A) is incorrect because accounting rules do not specify the terms of exchange, but rather provide a framework for recording and reporting transactions that have already taken place.

B) is incorrect because accounting rules do not affect the profitability of inventions. The success of a new product depends on a range of factors, such as its market demand, cost structure, and competitive landscape.

D) is incorrect because accounting rules do not increase the risk faced by entrepreneurs, but rather help them manage risk by providing information about their financial position and performance. This can be useful when seeking financing or partnerships, or when making strategic decisions about growth and investment.

Accounting Rules