Earnings & Accounting Concepts
How profit is recognised, adjusted, and sometimes distorted. 20 topics.
Revenue Recognition
The rules for when a sale is recorded as revenue.
Accrual Accounting
Recording revenue when it is earned and expenses when they are incurred, not when cash changes hands.
Cash Accounting
Recording transactions only when cash is received or paid.
Exceptional Items
Material items of income or expense that are unusual in size or nature and are therefore shown separately so the reader can see the underlying result.
Extraordinary Items
A term for events that were outside ordinary activities. Modern Indian accounting has largely dropped it as a separate below-the-line category.
Other Income
Income that is not revenue from the main operations: interest, dividends, gains on investments, and some forex or asset-sale gains.
Finance Costs
The cost of borrowing: interest, and related charges such as fees that are not capitalised.
Impairment
A write-down of an asset when its recoverable amount falls below its book value.
Deferred Tax
Tax that will be payable, or recoverable, in future periods because accounting profit and taxable profit differ in timing.
Current Tax
The tax expected to be paid on this period's taxable profit.
Effective Tax Rate
Tax expense divided by profit before tax.
Basic Earnings
Profit attributable to ordinary shareholders, before considering dilution from options and convertibles.
Diluted Earnings
The profit figure used for diluted EPS, adjusted for the after-tax effect of dilutive instruments.
Earnings Quality
How repeatable, collectible, and conservative the reported profit is.
One-Time Gains
Profits from events that are not part of the ongoing business, such as an asset sale or a legal settlement received.
One-Time Losses
Costs from events that are not expected to recur, such as a restructuring, a disaster, or an impairment.
Provisioning
Recording an estimated loss or expense before the exact amount is known.
Write-Offs
Removing an asset from the books because it is worthless or no longer recoverable, and recognising the loss.
Inventory Valuation
The method used to assign cost to unsold stock and to the cost of goods sold.
Non-Operating Income
Income from activities outside the core operations. In practice it overlaps other income.