Chapter 2

Reporting Profit

In This Chapter

arrow Taking a look at typical income statements

arrow Getting inquisitive about the substance of profit

arrow Becoming more intimate with assets and liabilities

arrow Handling unusual gains and losses in the income statement

arrow Correcting misconceptions about profit

This chapter lifts up the hood and explains how the profit engine runs. Making a profit is, of course, the main financial goal of a business. (Nonprofit organizations and government entities don’t aim to make profit, but they should at least break even and avoid a deficit.) Measuring profit is a challenge. Determining the correct amounts for revenue and expenses to record is no walk in the park.

Managers have the demanding tasks of making sales and controlling expenses, and accountants have the tough job of measuring revenue and expenses and preparing financial reports that summarize the profit-making activities. Also, accountants are called on to help business managers analyze profit for decision-making, ...

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