Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 4 - Income Statement and Related Information - Review and Practice - Questions - Page 179: 2


If there exists a reasonable correlation between past and future outcome, information from past transactions can be utilized in developing predictions about future performance.

Work Step by Step

Data from past experiences can be carefully analyzed to identify trends that can be used to predict future trends and patterns. For example, assuming financial reports of the last twenty years show that the company doubles its profit after every two years, then it is reasonable to predict and expect doubled profits within the next two years; if this doesn't happen, it may be a sign of (for example) a reduction in market share.
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