Financial reports can be divided into two categories. The first category discloses the results of the flow of resources over time and includes the income statement, the statement of retained earnings, and the statement of cash flows. The second category summarizes the status of resources at a particular point in time.

These two categories suggest an important distinction in measurement emphasis between flows and stocks. Flows are productive services that must be measured over some period of time, whereas stocks are resources that are measured at a particular point in time. The matching concept emphasizes flows. This emphasis previously resulted in the direct measurement of flows and reporting stocks as residuals of the matching process. Alternatively, defining earnings as the change in the net assets from nonowner transactions implies that stocks should be measured directly, making flows the residuals. Recent pronouncements of the FASB are consistent with the latter measurement approach, indicating a shift in emphasis from an income statement to an asset–liability, or balance sheet approach to the measurement of net income.

Accounting is the means by which management reports to various users of financial information. Evaluation of a company's financial position is an important factor in satisfying the needs of creditors, stockholders, management, the government, and other interested ...

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