What is GAAP and what is meant by reporting of assets based on historical cost? Why might the difference between market value and book value be very similar for current assets but differ greatly for fixed assets? In your opinion which one matters most for investors market value or book value?

The income statement measures the performance of a firm over a year or quarter. It is a flow concept (over a period of time) whereas the balance sheet was a stock concept (snapshot, at a given point in time).

The income statement equation is expressed as:

Revenues - Expenses = Income

At this point it would be good to memorize the items in the Income Statement (here EBIT stands for earnings before interest and taxes). Net Income is calculated in the following manner

Net Sales minus Cost of Goods Sold minus Depreciation = EBIT

EBIT minus Interest Paid = Taxable Income

Taxable Income minus Taxes = Net Income

Net Income = Dividends plus Addition to retained earnings

Answer rating: 100% (QA)

Answer To facilitate comparisons between companies this information must conform to certain accounting standards or principles called generally accepted accounting principles Generally accepted accoun... View the full answer