October 2008 Archive

According to the FASB, companies should provide financial statements to the public that show the following:

• Financial position at the end of the period
• Earnings (net income) for the period
• Cash flows during the period (more…)

In order for an economic event to be recognized, it has to be measured. There are five ways to measure an economic event, though not all events have all five attributes:

1. Historical cost.The cash equivalent price paid for goods or services on the acquisition date (more…)

Analyzing the profitability of a company depends on obtaining information about the profit reported by the company.A lot of judgment may go on behind the scenes to reach that number. The Financial Accounting Standards Board (FASB) guides that judgment with its pronouncements (FASB Statements) and a conceptual body of literature known as Statements
of Financial Accounting Concepts. The theory in these concept statements provides guidance concerning three main issues related to what amount of profits to report: recognition, measurement, and reporting.1 (more…)

Analyzing Profitability

Any analysis of profitability would have to begin with a discussion of what profit is, where one can find it reported, and how one can measure it. Profit is viewed as the same thing as net income, which is the bottom-line result on the income statement. Net income is calculated as revenues and gains less expenses and losses. Most of the information on an income statement is related to operations and can be used to assess and understand
how the business is performing. (more…)

4. Noncash assets would decrease when they are depreciated and an expense recorded (depreciation expense).
5. Noncash assets decrease and owners equity decreases when certain investments (classified as available for sale) are written down to market value and the unrealized loss reported as a deduction to owners equity.
6. A liability (like wages or taxes payable) increases and an expense is recorded (wages or tax expense) when accruals are recorded at the end of an accounting period. (more…)