The matching principle requires that
Answer(s): C
Performance can be measured only if the related revenues and cost are accounted for in the same period.
One method management can "manipulate" earnings is by
Answer(s): E
Known as "Big Bath" accounting, by taking all available losses at one time, management believes it can clear all the losses from the profit and loss statement and begin to increase profits.
When preparing a direct method statement of cash flows, the principal component of cash flow from operating activities is
Answer(s): B
Cash collections is the beginning point and principal component of cash flow from operating activities.
Cash received from the sale of fixed assets is an example of:
Answer(s): A
Investing activities usually involve activities that affect long-term assets.
Which of the following is/are FALSE under GAAP?
The change in cash balances of a firm can come about due to investing and financing cash flows, in addition to operating cash flows. Therefore, (I) is false. The relationship cash in = cash out is incorrect since the difference between the two goes into changing the cash balance of the firm. Hence, the operating, investing and financing cash flows need not balance out. It is very important to remember the following points about dividends and interests:1. Dividends received from stock investments are considered operating cash flows.2. Dividends paid on equity are considered financing cash flows.3. Interest payments on debt are considered operating cash flows.4. Interest received from debt investments are considered operating cash flows.
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