Traditional financial accounting calculations of profit ignore the cost of externalities.One reason for this is:
A) Negative impacts on environmental resources not controlled by an entity (e.g. air and oceans) are not considered impacts on assets of the entity.
B) Negative impacts on environmental resources not controlled by an entity do not fall into the definition of extraordinary items.
C) Negative impacts on environmental resources not controlled by an entity may cover more than one future accounting period.
D) Negative impacts on environmental resources not controlled by an entity are by-products of ordinary activities and are not therefore disclosed in the income statement.
E) None of the given answers.

Question

Quizplus · Accepted Answer

Traditional financial accounting only considers the impacts on assets that are controlled by the entity. Externalities such as negative impacts on environmental resources (e.g. air and oceans) are not considered as impacts on the assets of the entity because they are not under the entity's direct control or ownership.

Traditional Financial Accounting Calculations of Profit Ignore the Cost of Externalities.One