Financial Reporting: Basic Purposes | Exam Prep

The Basic Purposes of Financial Reporting

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Question

Which of the following statements reflects the basic purposes of financial reporting?

Answers

A. The best indication of a firm's ability to generate favorable cash flow is information based on previous cash receipts and payments.

B. Financial accounting is expressly designed to measure directly the value of a business enterprise.

C. None of these answers.

D. The primary focus of financial reporting is information about an enterprise's resources.

E. Investments and credit decisions often are based, at least in part, on evaluations of the past performance of an enterprise. E

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Explanations

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A. B. C. D. E.

Explanation

Although investment and credit decisions reflect investors' and creditors' expectations about future enterprise performance, those expectations are commonly based, at least in part, on evaluations of past enterprise performance.

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