Advantages of All-inclusive Income

The all-inclusive income concept is a method of reporting income in which all gains and losses for a company are reported on the balance sheet. This produces what is sometimes referred to as the company's "comprehensive income." Even if the money produced in that period did not come from operations in that same period, the income is still noted. This method of producing comprehensive income has a number of advantages.

  1. Simplicity

    • One of the main advantages of the all-inclusive income concept is that it is simple to understand. This is because funds received in other quarters are not moved to the current quarter, and money lost or gained in the current quarter is not moved. In addition, because all gains and losses are reported, a person does not need to consult other sheets to figure out how much money the company actually took in.

    Comprehensive

    • By including all types of gains and losses, this accounting system produces a more comprehensive picture of how the company is actually doing. Under other accounting methods, which only display certain types of income, the reader may receive an entirely misleading message. For example, by not including one-time income, that method may make a profitable quarter look like one in which the company actually lost money.

    Paints More Realistic Picture

    • By including all the information related to the company's financial situation, this method also manages to paint a more realistic picture of the company's finances than another method. If a company has extraordinary gains and losses, these gains and losses are clearly marked as extraordinary on the accounting sheet. An investor will not believe that these gains and losses are related directly to the company's current operations.

    Accepted

    • Not only is this method of accounting useful, it is also widely accepted by a number of different accounting groups dedicated to establishing best practices for the profession. For example, the American Institute of Certified Public Accountants leans toward the all-inclusive income concept. Acceptance by a wide number of bodies means that this method has faith among accountants and is easily interpretable.

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References

  • "Concepts in Federal Taxation 2009"; Kevin E. Murphy; 2008

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