Scribd
Upload
34 views1 page

Day 2

Profit is earned when a business's total revenue exceeds its total expenses, which can be distributed to owners or reinvested for growth. Earnings management involves two types: accrual earnings management (AEM) and real earnings management (REM), utilizing various techniques such as Big Bath and Revenue Recognition. Companies manage earnings to present a more favorable financial position and stabilize profit reporting over time.

Uploaded by

Reyu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
34 views1 page

Day 2

Profit is earned when a business's total revenue exceeds its total expenses, which can be distributed to owners or reinvested for growth. Earnings management involves two types: accrual earnings management (AEM) and real earnings management (REM), utilizing various techniques such as Big Bath and Revenue Recognition. Companies manage earnings to present a more favorable financial position and stabilize profit reporting over time.

Uploaded by

Reyu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

How profit is earned?

Profit is the money earned by a business when its total revenue exceeds its total
expenses. Any profit a company generates goes to its owners, who may choose to
distribute the money to shareholders as income, or allocate it back into the business to
finance further company growth

What are the two types of earnings management?

Contemporarily, there are two key types of earnings management namely; accrual


earnings management (AEM) and real earnings management (REM) and each of these
have its backing of the GAAP.

What are the five earnings management techniques?

There are five common strategies and techniques of earnings management. They
include the Big Bath, Cookie Jar Reserves, Operating Activities, Materiality and
Revenue Recognition methods.

Why do companies manage earnings?

An earnings management strategy uses accounting methods to present an excessively


positive view of a company's financial positions, inflating earnings. Earnings
management is used by companies to flatten out earnings variations and present profits
that are consistent each quarter or year.

What are potential earnings?

What Is Earning Potential? Earning potential refers to the potential gains from dividend
payments and capital appreciation shareholders might earn from holding a stock. In
other words, it reflects the largest possible profit that a corporation can make. It is often
passed on to investors in the form of dividends.

You might also like