ACCOUNTING EARNINGS Meaning and
Definition
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Accounting earnings refers to the financial performance of a company during a specific time period, as measured by the accrual accounting method. It is also commonly known as net income or profit. Accounting earnings are calculated by deducting all the expenses incurred by a business from its revenues over a particular accounting period, typically a month, a quarter, or a year. These earnings are recorded on the income statement, which outlines the company's revenues, expenses, and profits.
Accounting earnings reflect the company's ability to generate profits from its operations and provide insights into its financial health and performance. They provide stakeholders, such as investors, creditors, and management, with valuable information to assess a company's profitability, growth potential, and efficiency. Investors, in particular, closely analyze accounting earnings to determine the return on their investment and to make informed decisions.
It is important to note that accounting earnings rely on the accrual basis of accounting, which recognizes revenues when earned and expenses when incurred, irrespective of when the cash inflows or outflows occur. As such, accounting earnings may differ from cash flow, which represents the actual cash generated or consumed by a business during a given period.
Etymology of ACCOUNTING EARNINGS
The word "accounting" has its roots in the Middle English word "accompting", which evolved from the Old French word "aconter". It ultimately comes from the Latin word "computare", meaning "to calculate" or "to reckon".
The term "earnings" originates from the Old English word "earnung", which denotes "reward", "profit", or "income". It is derived from the verb "earnian", meaning "to obtain by one's labor or service".
When combined, "accounting earnings" refers to the calculated or reckoned profits or income related to a particular period, as measured by accounting principles and practices.
