Sunday, 27 December 2009

Measurement in the Financial Statements

Balance sheet reprots the stock of shareholder value in the firm.

Income statement reports the flow, or change, in shareholder value over a period.

In valuation terms:
  • The balance sheet gives the shareholders' net worth.
  • The income statement gives the value added to their net worth from running the business. 
While financial reporting conveys these ideas conceptually, the reality can be quite different.

Value and value added have to be measured, and measurement in the balance sheet and income statement is less than perfect.

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