Describe sustainable income and the importance of sustainable income in the evaluation of the income statement. Choose at least two (2) items or events that will affect sustainable income of a company. The main difference between the direct and the indirect method of cash flows is that for the direct method, the flow of cash is usually from the operating activities. This includes amounts for activities such as cash received from customers and the cash paid to suppliers. The indirect method, on the other hand, this shows the net income, which is then followed by any adjustments that need to be made in order to convert the overall net income to the cash amount derived from operating activities. The indirect method provides the most accurate information to creditors since in incorporates various aspects other than the cash spent and cash generated.
Propose the manner in which you would disclose these items or events to investors. Justify your response.
Extraordinary items are those material expenses or revenue items that
are characterized by their nature being unusual and they do not occur
frequently. They are usually classified as “one-time” events. For
instance, an extraordinary item may be from a company that is not in the
real estate business selling a house. This is a transaction that may
never take place again within the firm. Extraordinary items are usually
recorded separately from other ordinary revenues and expenses. They are
normally recorded after other items have been recorded, almost at the
bottom of the statement. Due to their nature of the occurrence, they
cannot be recorded together with other items on the statement.
The Professor’s Responded:
The way in which we compute the and direct method versus the indirect method follows a different process but the outcome of net income is the same for both methods. The direct method does not follow US GAAP. Now, these two items does not impact sustainable income in the way they are calculated. I’m trying to see the relevance and how it meets the requirements for this question. We first must ask ourselves, what is sustainable income? What two items on the income statement can impact sustainable income? How? Please your response and repost. US GAAP has eliminated extraordinary items…why? Please review the following link.http://fasb.org/jsp/FASB/Document_C/DocumentPage?c…
“Sustainable Income and Ratio Analysis” Please respond to the following:
sustainable income and the importance of sustainable income in the
evaluation of the income statement. Choose at least two (2) items or
events that will affect sustainable income of a company.
- Propose the manner in which you would disclose these items or events to investors. Justify your response.
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