MGMT 131A Lecture Notes - Lecture 2: Income Statement, Net Income, Income Tax
Document Summary
> companies omit items from the income statement that they cannot measure. > income numbers are a ected by the accounting methods employed. > the extent to which earnings is useful to investors & creditors in making resource allocation decisions, generally in terms of predicting future earnings and cash ows. > higher quality earnings exhibit higher levels of relevance representation. > earnings of high quality boost investors" con dence in the nancial statements. > companies have incentives to manage income to meet or beat all street expectations. > is reduced if earrings management results in info that is less useful for predicting future earrings & cash ows. *income statement provides important info to help assess the amounts, timing, and uncertainty of future cash ows - the central element of the objective of nancial report* Revenues: in ows or other enhancements of assets or settlements of its liabilities that constitute the entity"s ongoing major or central operations.
