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: 5


The transaction approach centers around the exercises that have happened amid a given period, and as opposed to presenting only a net change, a description of the components that comprise the change is incorporated. In the capital maintenance approach, only the net change (income) is reflected, while the transaction approach gives the net change (income) as well as the segments of pay (expense and revenue). The final net income figure ought to be the equivalent under either approach, given a similar valuation base.

Work Step by Step

Thus, most companies prefer the transaction approach because it provides both the net income as well as the components of income, including both expenses and revenue.
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