MGT220H5 Study Guide - Midterm Guide: Accrued Interest, Debt Service Coverage Ratio, Current Liability
Document Summary
If there is an error in the prior period correction made thru retained earnings it is net of tax. Correction of errors in prior periods and effects to prior periods from accounting policy changes are treated as prior period adjustments: net of tax = tax has already been applied, assets held for sale = current assets. Income statement (aka comprehensive income) measure company"s success in operations: earnings management reduces earnings quality, shareholder"s equity = shares capital + retained earnings treasury shares. 3 business activities: financing (borrowing, issuing shares, etc), investing (buy assets and invest in people), operating (using assets to earn profits) Need is: to evaluate past performance and profitability, assist in predicting future performance and assess potential risk. Limitations: reporting bias, estimation, using diff accounting methods, measure reliably. Quality of earnings (how solid earning numbers are) done to assess future earnings potential: nature of content.
