Multiple Choice
Which of the following is NOT a primary type of accounting?
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1. Introduction to Accounting
Types of Accounting
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Which type of accounting analysis is primarily used to evaluate common financial measures such as liquidity, profitability, and solvency?
A
Financial statement analysis
B
Tax accounting analysis
C
Cost accounting analysis
D
Managerial budgeting analysis
Verified step by step guidance1
Step 1: Understand the key terms in the question. Liquidity refers to a company's ability to meet short-term obligations, profitability measures the ability to generate income, and solvency evaluates long-term financial stability.
Step 2: Recognize that these measures are derived from financial statements such as the balance sheet, income statement, and cash flow statement. This indicates the analysis is related to financial statement data.
Step 3: Compare the options provided. Tax accounting analysis focuses on compliance with tax laws, cost accounting analysis deals with cost management, and managerial budgeting analysis involves planning and controlling budgets. None of these directly evaluate liquidity, profitability, or solvency.
Step 4: Identify that financial statement analysis is the process of reviewing and analyzing a company's financial statements to assess its financial health, including liquidity, profitability, and solvency.
Step 5: Conclude that the correct type of accounting analysis for evaluating these measures is financial statement analysis.
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