Smoothing Periodic Income.

Abstract Fifty years ago the principal interest of those concerned with the financial data of business enterprises centered on the periodic display of assets and liabilities (balance sheet). Over the course of the last half century there is little question that a pronounced shift in the interest of the users of published corporate reports has occurred. Thus, at the present time the principal attention of investors, financial analysts, employees, and the general public is focused on the statement setting forth the periodic net income or earnings of the business, with the balance sheet being viewed".. . as the connecting link between successive income statements and as the vehicle for the distribution of charges and credits between them." This emphasis on the significance of the amount of periodic net income has resulted in a considerable amount of attention on the part of professional societies and regulatory bodies being directed toward the establishment of principles and procedures aimed at achieving a high degree of objectivity in the determination of periodic net income for the individual enterprise, with the resulting increased meaningfulness of the comparison of the operating results of two or more enterprises. It will be the purpose of this article to survey some of the accounting techniques which may be applied to affect the assignment of net income to successive accounting periods. As the title indicates, emphasis will be placed on the possibilities for smoothing or leveling the amplitude of periodic net income fluctuations.