ACC563 Assignment 3 - Week 6: Assignment #3 Week 6:...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Week 6: Assignment #3 1 Week 6: Assignment #3 ─ Income Statement, Balance Sheets, Cash Flows and Working Capital Strayer University Acc 563 – Advanced Accounting Theory Professor: Alfred Greenfield February 11, 2011
Background image of page 1

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

View Full DocumentRight Arrow Icon
Week 6: Assignment #3 2 Week 6: Assignment #3 ─ Income Statement, Balance Sheets, Cash Flows and Working Capital Evaluate the Elements of a Typical Income Statement and Explain Which Is Most Likely to Present Challenges and Why Evaluating the Elements of a Typical Income Statement The FASB’s Statement of Financial Accounting Concepts (SFAC) No. 6 establishes the definitions of key elements of the income statement, including revenues, expenses, gains, and losses (Schroeder, Clark, & Cathey, 2011). 1. Revenues are inflows or other enhancements of assets of an entity or settlement of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations. A key characteristic is that revenues are inflows resulting from providing goods or services to customers. 2. Gains are increases in net assets from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners. Examples are a gain on the sale of a building and a gain on the early retirement of long- term debt. 3. Expenses are outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations. A key characteristic is that expenses represent outflows of resources incurred in the process of generating revenues.
Background image of page 2
Week 6: Assignment #3 3 4. Losses are decreases in net assets from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from expenses or distributions to owners. Examples are losses on the sale of investments and losses from litigation. Explaining the Most Likely to Present Challenges I think that the most likely to present challenges is these definitions are not sufficiently robust to deal with some of the most difficult accounting problems. Income statements should help investors and creditors determine the past performance of the enterprise, predict future performance, and assess the capability of generating future cash flows. However, the elements of an income statement have the following issues or challenges. 1. Certain relevant items are not reported on the income statement because they cannot be reliably measured or are incapable of being measured in monetary terms, e.g. the trademarks or brand value recognition. 2.
Background image of page 3

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

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

ACC563 Assignment 3 - Week 6: Assignment #3 Week 6:...

This preview shows document pages 1 - 4. Sign up to view the full document.

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