Financial Accounting Exam 2

• 1. evaluating past performance
• 2. predicting future performance
• 3. help access the risk and uncertainty of achieving future cash flows

• 1. companies omit items from the income statement that they cannot measure reliably
• 2. income numbers are affected by the accounting methods employed.
• 3. income measurement involves judgment

• companies have incentives to manage income to meet or beat the wall street expectations so that
•  1. market price of stock increases
•  2. value of tock options increase

only if earnings management results in information that is less useful for predicting future earnings and cash flows

• revenues
• expenses
• gains
• losses

• inflows or other enhancements of assets or settlement of its liabilities that constitute the entity's ongoing mayor or central operations
• Ex: sales, dividends, rent, fee, interest receivable

outflows or other using up of assets or incurrences of liabilities that constitute the entity's ongoing major or central operations

Gains are increases in equity(net assets) from peripheral or incidental transactions of an entity except those that result from revenues or investment by owners

Losses are decreases in equity(net assets) from peripheral or incidental transactions of an entity except those that result from expenses or distributions by owners.