With the exploding interest in and acceptance for market-value-based information in financial statements, we thought we would rerun a couple of columns from several years back as part of our summer tradition.This one was published in spring 2001, and talks about the hole in generally accepted accounting principles, even value-based GAAP, that continues to insist that there is a difference between unrealized and realized gains and losses. At the heart of this anachronistic practice is confusion between income and cash flows, which are two different things best described in two different financial statements.
Income is the change in equity produced by changes in assets and liabilities. The equity, which is nothing other than the owners' wealth, automatically changes when the value of the assets and liabilities change. This increase or decrease in wealth is as real as it gets. Could it go away as values reverse on another day? Absolutely, but those subsequent events are additional changes in the assets and liabilities and the income of that day. That risk is a fact of life that is not eliminated by not reporting it on the income statement.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access