Evolution of the concept of income and its measurement
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In the last decades there has been a change in the approach to defining and measuring accounting profit. Under the traditional concept it was calculated on operating level and derived from individual transactions using historical cost as the basis for assets and liabilities valuation. Today, based on the development of value management theory, total comprehensive income determines changes to equity resulting from transactions other than those with the owners of an entity. This is defined as transition to the entity`s operations concept which frequently involves the use of fair value. Consequently, the role of accruals approach becomes more significant, especially revaluation of balance sheet items. Unfortunately, this fails to include the described processes and puts emphasis on management ac-counting approach to incomes and expenses. In order to improve relevance of information about profit, entities should not only report a figure itself but should also disclose details regarding its quali-ty defined by liquidity, stability, controllability and reliability. This would allow current and future investors to get better insight into ability of an entity to convert paper profit into cash flows and fore-cast if a business can generate similar benefits in the periods to come.
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