Income measurement Measurement Expenses and Losses o Expenses are incurred outflows, prospective outflows, or allocations of past outflows of cash from operations o Losses are decreases in a company's net assets arising from non-operations Expenses and losses are resource consumed, spent, or lost in pursuing revenues and gains
Expenses and Losses • Expenses are incurred outflows, prospective outflows, or allocations of past outflows of cash from operations •Losses are decreases in a company’s net assets arising from non-operations Expenses and losses are resource consumed, spent, or lost in pursuing revenues and gains Income Measurement Measurement
Income measurement Alternatives Two major income dimensions: 1. operating versus non-operating 2. recurring versus non-recurring *Motivated by need to separate permanent and transitory components
Two major income dimensions: 1. operating versus non-operating 2. recurring versus non-recurring* *Motivated by need to separate permanent and transitory components Income Measurement Alternatives
Income measurement Alternatives Operating Vs Non-Operating and Recurring vS Non-Recurring Operating Income Non- Recurring Recurring Income Income Non-Operating Income
Operating vs. Non-Operating and Recurring vs. Non-Recurring Income Measurement Alternatives Operating Income Non-Operating Income Recurring Income Non- Recurring Income
Income measurement Alternatives Aternative ncome statement measures Net income-widely regarded as"bottom line "measure of Income Comprehensive income--includes most changes to equity that result from non-owner sources; it is actually the bottom line measure of income; is the accountant's proxy for economic income Continuing income--excludes extraordinary items, cumulative effects of accounting changes, and the effects of discontinued operations from net income Core income--excludes all non-recurring items from net Incomme *Often erroneously referred to as"operating income
Alternative Income Statement Measures • Net income—widely regarded as “bottom line” measure of income • Comprehensive income--includes most changes to equity that result from non-owner sources; it is actually the bottom line measure of income; is the accountant’s proxy for economic income • Continuing income--excludes extraordinary items, cumulative effects of accounting changes, and the effects of discontinued operations from net income • Core income--excludes all non-recurring items from net income *Often erroneously referred to as “operating income” Income Measurement Alternatives
Income measurement Analysis What constitutes the 'correct measure of income for analysis purposes? There is no answer for two reasons Correct measurement depends on analysis objectives o Alternative accounting income measures result from including or excluding line items--still subject to accounting distortions
Income Measurement Analysis What constitutes the ‘correct’ measure of income for analysis purposes? There is no answer for two reasons: • Correct measurement depends on analysis objectives • Alternative accounting income measures result from including or excluding line items—still subject to accounting distortions