Accounting Conservatism
Categories: Accounting, Careers, Company Management, Tax, Trusts and Estates
It's all about the profits. When in doubt, honest accountants apply conservatism to every transaction they record. If something can be expensed up front, it generally should be, and with proper accounting, according to GAAP, the lower profit number should be the one presented to investors. All kinds of chicanery can happen in the presentation of real profits. Tons of wiggle room for con artists exist when they record such subjective terms like "depreciation," "amortization," "allowance for doubtful accounts," "increase or decrease in value of inventory," "liquidity discounts," and all kinds of other elements in a complex large company that can turn a dollar of share in profits into twelve cents, where conservative accounting rules are applied.
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Finance: What is an Income Statement?51 Views
what is an income statement I made money yeah that's an income statement and it's [Man jumping up as money rains down]
actually not all that far off from what accountants lawyers bankers and other
forms of humans who count beans call an income statement well cleverly named an
income statement is a statement of income it just states how you made your [Two guys stood at a food stall]
income your french fries smoothie stand like who would have ever thought that
would taste good sold a million units at five bucks each to give you five million
dollars in revenue last year well you had some cost that went with
those sales though you had to buy cups the french fries and other unnamed [Costs of french fries smoothie stand]
ingredients and you had to pay 2 some ones to stand there and convince people
to drink liquefied potatoes then you had to rent space for your stand and buy
insurance and advertise and that abnoxious mascot in the potato costume
you had five million in revenue and three million in expenses and this [revenue of french fries smoothie stand]
number right here that's your pre-tax or operating profit
you then take away your 30% in taxes which on two million dollars is 600
grand and blammo that 1.4 million is your net income or [net income figure for business]
after-tax profit this whole thing right here is your income statement and yeah [income statement for french fries smoothie business]
it can and does get way way more complex than this but let's start with starch
smoothies and work our way up [man at french fry stand thinking about selling sushi shakes]
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