(L.O. 5) The term “articulation” refers to the:

a. expression of dollar amounts in terms of a foreign currency.

b. correction of amounts previously reported on the financial statements.

c. interaction of the elements of financial statements.

d. degree of preciseness of financial reports.

Approach and Explanation: Define or explain articulation before you read the answer selections. Select the answer that best fits your description. The FASB classifies the elements of financial statements into two distinct groups. The first group of three elements—assets, liabilities, and equity—describes amounts of resources and claims to resources at a moment in time. The other seven elements (comprehensive income and its components—revenues, expenses, gains, and losses—as well as investments by owners and distributions to owners) describe transactions, events, and circumstances that affect an enterprise during a period of time. The first class—assets, liabilities, and equity—is changed by elements of the second class and at any time is the cumulative result of all changes. This interaction is referred to as “articulation.” That is, key figures in one statement (e.g. balance sheet) correspond to or are influenced by amounts reported in another statement (e.g. income statement). (Solution = c.)