ACCT 301 Chapter Notes - Chapter 4: Income Statement, Financial Statement
15 Nov 2016
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Lo4 1: discuss the importance of income from continuing operations and describe its components. The components of income from continuing operations are revenues, expenses (including income taxes), gains, and losses, excluding those related to discontinued operations. Companies often distinguish between operating and nonoperating income within continuing operations. Lo4 2: describe earnings quality and how it is impacted by management practices to manipulate earnings. The term earnings quality refers to the ability of reported earnings (income) to predict a company"s future earnings. The relevance of any historical-based financial statement hinges on its predictive value. To enhance predictive value, analysts try to separate a company"s transitory earnings effects from its permanent earnings. Many believe that manipulating income reduces earnings quality because it can mask permanent earnings. Two major methods used by managers to manipulate earnings are: (1) income shifting, (2) income statement classification. Lo4 3: discuss the components of operating and nonoperating income and their relationship to earnings quality.
