The Usefulness of the Balance Sheet
The recent emphasis on capital maintenance concepts of income as seen in the FASB's support for "comprehensive income" implies that balance sheet measurement should determine measures of income. That is, accrual accounting is to focus on measurements in the balance sheet, and because financial statements are articulated, measurements in the income statements are residual in nature.
a. Do you believe that this focus implies that the balance sheet is more important than the income statement? Explain.
b. How is balance sheet useful to investors? Discuss.
c. What is meant by the phrase "financial statements are articulated"?
d. Which measurements currently reported in balance sheets are consistent with the physical capital maintenance concept? Give examples.
e. Which measurements currently reported in balance sheets are not consistent with the physical capital maintenance concept? Give examples.
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