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ANALYZING OPERATING ACTIVITIES. Accounting Concept of Income. Based on the concept of accrual accounting Two major process in income measurement : Revenue recognition Matching. Measuring Acounting Income. Revenues and Gains
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Accounting Concept of Income • Based on the concept of accrual accounting • Two major process in income measurement : • Revenue recognition • Matching
Measuring Acounting Income • Revenues and Gains • Distinction: based on the ongoing business activites that produce revenues. • Expenses and Lossess • Distinction: based on the ongoing business activites that produce revenues.
Alternative Income Classification and Measures • Recurring vs nonrecurring • Net income, comprehensive income, and continung income • Core income (exludes all nonrecurring items) • Operating vs nonoperating
Nonrecurring Items • Extraordinary items • Discontinued operations • Accounting changes • Special items • Asset impairments, Restructuring Charges
Revenue and Gain Recognition • Analysis is to ascertain that revenue recognition method properly reflect economic reality.
Deferred Charges • R&D • Computer softwarre expenses • Exploration and Development Costs in Extractive Industries