ACCT 103 Lecture Notes - Lecture 30: Cash Flow, Income Statement, Financial Statement
Income statement- the report that measures the success of company operations for a given period of time. It provides investors and creditors with information that helps them predict the amounts, timing, and uncertainty of future cash flows. Evaluate the past performance of the company. Provide a basis for predicting future performance. Help assess the risk or uncertainty of achieving future cash flows. Companies omit items from the income statement that they can"t measure. Income numbers are affected by the accounting methods employed. Income measurement involves judgment when estimating assets reliably. There"s no intangible assets or internal development like goodwill. Companies have incentives to manage income to meet earnings targets or to make earnings look less risky, which sometimes overrides good business practices. Earnings management- planned timing of revenues, expenses, gains, and losses to smooth out bumps in earnings. Companies use this to increase income in the current year at the expense of income in future years.