Chapter 4 Final Version fall 2009

Chapter 4 Final Version fall 2009 - WelcometoADMS3585...

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Welcome to ADMS 3585:  Intermediate Accounting 1 ADMS 3585 – Fall 2009 –  Lecture 3  - Slide 1 
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Agenda: Chapter 4 Exercise Time  ADMS 3585 – Fall 2009 –  Lecture 3  - Slide 2
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ADMS 3585 – Fall 2009 –  Lecture 3  - Slide 22 Chapter 4 – Reporting Financial  Performance 1.Income Statement 2.Format of I/S 3.Reporting Irregular Items 4.Special reporting Issues
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Usefulness of Income Statement ADMS 3585 – Fall 2009 –  Lecture 3  - Slide 23 Income Statement provides feedback and  predictive values to stakeholders for their  understanding of business. Evaluation of past performance and  profitability  Provide a basis for predicting future  performance Help assess the risk or uncertainty of  achieving future cash flows.
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Limitations of Income Statement ADMS 3585 – Fall 2009 –  Lecture 3  - Slide 24 Income Statement includes mixtures of  hard   and   soft   numbers.  Hard numbers: e.g. Cash sales   Soft numbers: e.g. Bad debt accrual Accounting estimates and methods Inventory measurement; FIFO, LIFO Depreciation rates and useful life Exclusion of items Contingent gains Brand recognition
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Quality of Earnings ADMS 3585 – Fall 2009 –  Lecture 3  - Slide 25 The reliability of the information presented is dependent on the  quality of earnings. Characteristics of high quality earnings: Nature of Content Unbiased and determined objectively Represents economic reality  Reflects earnings from ongoing operations Can be correlated with cash flows from operations Based on sound business strategy/model Presentation Does not disguise or mislead (transparent) Information presented is understandable Also, information is clear and concise
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ADMS 3585 – Fall 2009 –  Lecture 3  - Slide 26 Earning Management:  the process of targeting certain  earnings levels and trying to reflect that targeted  numbers in the earnings. Question:  Do you think it is inappropriate for the  management to practice earning management? Question: 
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This note was uploaded on 04/27/2010 for the course ADMS 1010 taught by Professor Jurkowski during the Spring '09 term at York University.

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Chapter 4 Final Version fall 2009 - WelcometoADMS3585...

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