Financial Statements and Income Measurement

Abstract

As demonstrated in the previous chapter, business income may be measured by calculating the difference between ownership interest in the business at the beginning and end of a period of time after adjusting for any changes in the level of investment by the owners. When business income is measured over the life of an entity, the above method of income determination provides a relatively unambiguous measure. Unfortunately, the various groups of users of accounting information, including the owners, require information concerning the level of business or enterprise income at much more frequent intervals, i.e., annually or even semi-annually. As will be demonstrated throughout this textbook, many of the problem areas for accounting arise because of the need to measure income at periodic intervals rather than over the life of an enterprise.