Explain the Transaction Approach to Measuring Income

question 29

Essay

Explain the transaction approach to measuring income. Why is the transaction approach to income measurement preferable to other ways of measuring income?

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Definitions:

Expenses

Outflows or other using up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.

Held-to-maturity Securities

Financial assets purchased with the intention and ability to hold them until a specified maturity date.

Fair Value

The estimated price at which an asset or liability could be sold or settled in a current transaction between willing parties.

Equity Method

An accounting technique used to record investments in associate companies where the investor has significant influence but not full control, recognizing income in proportion to their share of the earnings.