ACC 321 – CHAPTER 4

ACC 321 – CHAPTER 4 - ACC 321 Chapter 4 1....

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ACC 321 – Chapter 4 1. Income statement: a. Why is the Income Statement used? Measure Performance Help Investors/Creditors predict future cash flows (future earnings) Is typically used to determine executive compensation b. Limitations: Relevance versus reliability Increases in the value of: assets, brand recognition, customer satsifaction Estimates and judgment (humans) c. Earnings Quality / Earnings Management: Earnings expectations: wall street or street Motivation to meet “expectations” can be greater than motivation to properly manage the business Can result in earnings management - Estimate expenses below actual amounts - Bad debt expense, warranty expenses, restructuring charges Recognize sales early (aggressive revenue recognition) 2. IS Format: a. Single-step: Revenues minus Expenses Advantage: Simple EPS: income per shares outstanding b. Multi-step: Separate the operating and non-operating activities Sales-COGS=Gross Profit Add up operating expenses Gross Profit-Operating Expenses=Operating Income
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 11/02/2011 for the course ACC 321 at Miami University.

Page1 / 14

ACC 321 – CHAPTER 4 - ACC 321 Chapter 4 1....

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online