Playing by the rules (ABSTRACT)
Libby, T., & Mathieu, R.
published: 2001 | Research publication | Refereed Journals - Accounting
Libby, T., & Mathieu, R. (2001). "Playing by the rules". CMA Management, 75 (5), 38-42.
ABSTRACT: A good understanding of the forces behind the conceptual framework allows the nonfinancial manager to appreciate the value of accounting principles. Appropriate application of accounting principles helps to ensure the reported earnings number is representative of the performance of the firm. To perfectly measure the profitability of a firm, one needs to be patient. The degree of patience depends on the number of years the firm exists. Once the firm ceases business and sells off all of its assets for cash, its true profitability can be calculated. True profitability is the difference between the cash generated by the firm during its lifetime and the costs it incurred in generating this cash. While this method works in theory, in reality profit information throughout the life of the firm is needed for tax, investment and management purposes. Consequently, the performance of the firm on an annual basis must be estimated.
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revised Jan 24/05
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