The significant of income to any business
entity cannot be over-emphasized. Income of the residue That is available for
distribution to the shareholder which ensured the maintenance of the capital
(Glautieu et al 2011:430). Income is a basic and important item of financial
statement that has various uses in various context. It is generally perceived
as a basis for taxation and redistribution of wealth, a determination of
dividend payments policies and investment and decision making guide and element
of prediction (Riachi-Belkauie 2002). The choice of income measurement concepts
which has a direct bearing on the operating performance reporting of an
organization is informed by some factors which this paper sought out to
examined. To achieve the objective of this study, opinion of selected staff of
ABC transport Nigeria Ltd was sought thought the use of questionnaire and
besides relevant theories and concepts were reviewed. The questionnaire were
analyzed. The evidence show that the choice of accounting concepts as the
prevailing income measurement concept is premised on historical cost accounting
given its unconditional and long standing acceptance of this version of income
by the accounting profession and the business world. This can be explained by
the fact that its objectives verifiable practical and easy to understand and
avoid of confusion.
Table of Contents
Chapter One: INTRODUCTION
Background of the study
Statement of the problem
Objective of the study
Research of Hypothesis
Significance of the study
Scope and Limitation of the study
Definition of Terms
Chapter Two: REVIEW OF RELATED LITERATURE
Chapter Three: RESEARCH DESIGN AND
Sources of Data
Primary Sources of Data
Secondary Sources of data
Population of Determination of Sample Size
Methods of Investigation
Chapter Four: PRESENTATION, ANALYSIS AND
INTERPRETATION OF DATA
Analysis of Data
Testing of Hypothesis
Chapter Five: SUMMARY OF FINDINGS, CONCLUSION
Summary of Findings
Background of the Study
Business are in the business of earning
income. Their activities do not necessarily coincide with standard periods of
time, but the business environment requires that firms report income or loss
regularly. For example, owners must receive income reports every year, and the
government requires corporations to pay taxes on annual income. Within the
business, management uses financial statements – prepared every month or more
often to monitor performance. Because of these demands, a primary objective of
accounting is measuring net income in accordance with generally accepted
accounting principles. Readers of financial reports who are familiar with these
principles understand how the accountants defined net income and are aware of
it’s strengths and weaknesses as a measurement of company performance.
Business rely on profit to buy new inventory,
expand operations and finance product development. Without profit, business
would stagnate and risk losing its market share to other competitors. Its share
price will fall, which means its cannot rise as much money with share sales and
cannot borrow from banks as easily. The goal of many businesses is to generate
a profit for owners, employees and shareholders. It is therefore imperative at
this point to illustrate the definition of income measurement. From
accountant’s perspective, income is defined as the residual portion of revenue
which is the result of subtracting total revenues generated from the total
expenses incurred by the company during the revenue generation phase. An
economist though would beg to differ, by defining income in terms of residual expected cash flows
available from consumption, after dividend and equity appreciation has been
taken into account although the accountants and the economists view of the
income concepts differ, in that one deals with historical values and the other
in future expected cash flows, its importance is of vital use. Effectively,
management has been entrusted with funds from various sources (shareholders,
financial etc) to appreciate its value, and as such. Income is an effective
indicator of measuring that. Management’s stewardship on its operating
effectiveness of working capital may be best monitored by charting a company’s
From managerial point of view, income will
aid in high lighting the disparities between actual and predicted performance
targets. As for governments, income is a bench mark of a company’s asset
appreciation for a given period, that they may apply taxes on.
However, the importance of income measurement
cannot be over emphasized. Explicte survey has revealed that ther is growing
awareness of importance of income measurement and its influence on the success
of a corporate organization.
Based on the above general promises of our
discussion, income measurement requires expert skillful in determining not
income as its effectiveness make an esteem corporate organization prosperous
and successful as a result of the impact of income measurement on a business,
this is to assess the income concept measurement in corporate profitability.
Statement of the Problem
Corporate organization will be safe, sound
and healthy if they measure their income efficiently and periodically. These
will enable investors to understand the financial health of these business
organization. Today, there are many business failures as a result of poor
measurement of income some corporate organization has gone bankrupt because of
poor measurement of business income.
If we ignore this problems, many corporate
organization will go out of business. There will be how investment,
unemployment will rise, government income will reduce that is tax paid to
government will drop.
In the light of all these problems and the
fact that there is the awareness of the need for income measurement. This study
focuses on looking at the ways and methods of measuring income. It will also
highlight the need to study the accounting period issue, the continuity issue
and the matching issue. Moreover, income statements, net income will be discussed.
Finally, the basic elements of revenue recognition, basic elements of expenses
recognition, the adjusting process and related entities and accrual-versus
cash-basis accounting will be looked into.
Objective of the Study
i) To determine the immense importance of
income measurement in corporate organization. The goal of many businesses is to
generate a profit for owners, employees and shareholders it provides important
financial information to business, manages, investors, lender and analysts. It
allows investors to make direct comparison between companies income measurement
can help managers focus on specific areas for improving financial operations.
Investors and creditors use it to evaluate a company’s financial performance.
Management uses it to communicate with interested outside parties about its
accomplishment running the company.
ii) To critically examine and evaluate the
methods used by corporate organization in measuring their income. Accounting is
the method companies use to meaure profit, commonly referred to as net income.
Many forms of accounting exist for measuring a company’s net income. Smaller
businesses often use a basic form called bookkeeping. Larger or publicly held
companies use accrual-based accounting methods that carefully track, record and
report various financial transactions from business operations.
iii) To access the general contribution of
income measurement in determining the profit and loss of corporate
organization. Income statement serves several important purposes.
a) Allows shareholders/owners to see how the
business has performed and whether it has made an acceptable profit (return)
Help identify whether the profit earned by the business is sustainable
c) Enables comparison with other similar
business (e.g competitors) and the industry as a whole.
d) Allows providers of finance to see whether
the business is able to generate sufficient profits to remain viable (in
conjunction with the cash flow statement)
e) Allows the directors of a company to
satisfy their legal requirements to report on the financial record of the business.
iv) To determine the factors hindering the
measurement of income in corporate organization. One of the most compelling
problems that continue to confront accountants is the measurement of income of
an economic entity.
a. The issue of income recognition
measurement and report is at the heart of financial reporting. What constitute
accounting income and how effective it can be measured
b. Revenue/loss is recorded for only certain
assets (such as land and buildings) as they appreciated depreciate in value
(whereas the reminder of the assets are recorded according to their cost
c. Capital profits go unrecorded until they
d. Unrealized profits are not recorded until
their date of realization, where as unrealized losses are recorded immediately.
e. The allotted depreciation, depreciation
expense, is an accountant’s estimate.
1.4 Research Questions
i) When does the company i.e corporate
organization present its financial statement or report?
ii) Does corporate organization prepares its
financial statement on time
iii) How does corporate organization
recognized revenue within a short period of time, such as a month or a year.
How does corporate organization recognized expenses within a short
period of time
v) What methods are useful in measuring
income of corporate organization.
vi) Does corporate organization apply
matching principles concepts in the determination of their income.
vii) Does corporate organization adjust its
accounting and related entities as and when due.
viii) Does the financial statement reflect
corporate organization’s performance.
ix) Does the financial statement shows
corporate organizations profitability
x) Does corporate organization apply the
guidelines rules, and sets of rules used in determining corporate financial
The researcher hypothesis is made to test the
reality and correctness of the questions contained in the measurement of
corporate income. The research question can only be correct when they have been
tested and proved to be correct.
Ho: There is no significant relationship
between corporate income measurement and profitability.
Hi: There is significant relationship between
corporate income measurement and profitability
Significant of the Study
a) This study will determine certain problems
associate with the measurement of income in a corporate organization in
Nigeria. The difficulty of assigning revenues and expenses to a short period of
term such as a month or a year. Not all transactions can be assigned easily to
specific time periods. Purchases of building and equipment, for example, have
an effect that extends over many years.
b) It will highlight useful information on
the possible means of improvement. Publicly hold companies use accrual base
accounting methods that carefully track record and report various financial
transactions from business operations. The general idea is that economic events
are recognized by matching revenues to expenses (the matching principles) at
the time in which the transaction occurs rather than when payment is made (or
received. It gives a more accurate picture of a company’s current financial
c) It will be of immense benefit to
investors, government and banks
d) Finally, it will serve as a useful guide
for further researcher, who may wish to go into the subject.