Basic Theory

Question 1

Earnings

Answer 1

Earnings is the extent to which revenues and gains associated with cash to cash cycles substantially completed during the period exceed expenses and losses directly or indirectly associated with those cycles. Revenues, expenses, gains, and losses are used to compute earnings.

Question 2

Comprehensive Income

Answer 2

Earnings adjusted for cumulative accounting adjustments and other non owner changes in equity (such as foreign currency translation adjustments). Per SFAC 5, comprehensive income would reflect all changes in equity of an entity during a period, except investments by owners and distributions to owners.

Question 3

Three Criteria for prior period adjustment

Answer 3

1) the effect of the adjustment is material to income from continuing operations.
2) the adjustment can be identified with a prior period.
3) the amount of the adjustment could not be estimated in prior periods