Chapt4 - Chapter 4 - Statement of Income and Retained...

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Chapter 4 1 Chapter 4 - Statement of Income and Retained Earnings I. Identify the uses and limitations of an income statement. A. The Relative Importance of the Income Statement as Providing a Measure of Profit. 1. Income information helps interested parties predict the amount, timing, and uncertainty of future cash flows. Income information is useful: a. for evaluating past performance of a company. b. for determining the risk (uncertainty) of achieving future cash flows. Information about the various components of income— revenues, expenses, gains, and losses— is helpful for assessing the likelihood that particular cash flows will continue in the future. B. Limitations of the Income Statement. 1. "Economic income:" the maximum amount that can be consumed during the period while leaving the entity as well off at the end as at the beginning. a. There is no general agreement on how to measure "well-offness," so we measure income using "Accounting Income". b.
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This note was uploaded on 06/22/2008 for the course CHAPT Chapt4 taught by Professor Chapt4 during the Spring '08 term at WSBC.

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Chapt4 - Chapter 4 - Statement of Income and Retained...

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