Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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What do companies create using GAAP?

Performance reviews
Financial statements
Investment portfolios
Corporate strategies

The correct answer is: Financial statements

Companies create financial statements using Generally Accepted Accounting Principles (GAAP). Financial statements are structured reports that outline the financial activities and position of a business, and adherence to GAAP ensures that these statements are consistent, comparable, and transparent. This framework includes standards for balance sheets, income statements, and cash flow statements, allowing stakeholders such as investors, creditors, and regulators to accurately assess a company’s financial performance and condition. While performance reviews can be an important aspect of internal management, they do not fall under GAAP requirements. Investment portfolios are related to the management of assets, and corporate strategies pertain to the overall direction and goals of the business, neither of which specifically involve GAAP standards. Therefore, the creation of financial statements is the core purpose aligned with GAAP, as it provides a clear and standardized way to report financial information.