THE THEORY OF INCOME DETERMINATION IN ACCOUNTING, STATING THE VARIOUS METHODS OF INCOME MEASUREMENT AND THEIR IMPACT ON FINANCIAL REPORTING

ABSTRACT

Financial accounting reports are essential for tracking all financial activities. Accounting information, such as the cash flow and income statements reports contained in corporate financial accounts, is used by management in making decisions.Every financial report for a publicly traded company must be prepared and presented to the Securities and Exchange Commission in accordance with the Financial Accounting Standard Board's financial accounting rules.This present study investigates the accounting theory of income determination, describing the numerous methods of revenue measurement and their impact on financial reporting.Cross-sectional data analysis was employed for this aim, and data was collected from 250 executives and staff members working in SMEs via a standardized questionnaire.According to the findings, the financial statement report has a significant impact on the effectiveness of revenue measurement methodologies.Other operational issues, such as corporate records, report understandability, and data quality, have a significant impact on the managerial decisions of SME firms.The study discovered that financial report understandability, relevance, and quality moderate a favorable link between financial financial reporting and managerial decisions.

1. 1. Introduction

The fluidity of today's corporate landscape, as well as the transformation of the entire world into a globalized one, have piqued the interest of company executives of all stripes.According to Abdullah and Othman (2019), managers face a variety of issues as a result of inadequacies in managing their institution's poor decision-making effectiveness. The controllable and uncontrolled forces influence all decisions, even if they differ from one sector to the next; hence, they invariably contribute to the fulfillment of the organizational goal (Ahmed & Al-Kake, 2019). Managers must have accurate, authentic, transparent, and pertinent data to back their management decisions in order to do so (Abdullah & Rahman, 2015). Financial reports are the most useful data for ensuring managerial decisions since they maximize decision correctness and eliminate big errors. Profitability should be remembered as one of the top concerns of organizations.All business must strive to be profitable, and management is responsible for making sure that happens(AlKake, et al., 2019). To do this, the information provided by an organization's financial records must be studied, assessed, and used as a basis for decision-making (Ibanichuka, 2018). Business reports provide an overview of both the short- and long-term market financial and profitability conditions, which has positive impacts and aids in the development of accounting knowledge for a wide variety of consumers(Sultan et al., 2020). Every industry has information demands to support organizational success, such as marketing and manufacturing sector performance (Gardi, et al., 2020; Prabhu, Abdullah, Ahmed, 2020). The requirement for managerial knowledge is generally greater the larger the company. The decision-making processes of corporate entities incorporate financial statements.The inclusion of accounting records as a record is the financial statement's main goal. It is crucial to draw the conclusion that the ability to use accounting knowledge is essential for corporate success.

            A corporation creates many statements at the end of each fiscal year. The advancements over time are summed up in these statements. The data must be analyzed such that the customer can see the parallels, differences, and patterns between periods in order to use the information in this financial report to assist them make decisions.The accounting data in the financial report can be examined to help managers make better informed decisions (Jaf et al., 2019). Reviewing financial statements is a crucial approach for assessing an organization's effectiveness and ensuring that decisions are based on facts rather than generalizations.In order to identify organizational and financial problems that could have an influence on organizations, a financial analyst evaluates the financial records of businesses (Bousfield, 2016). Anyone who examines a company's financial records should also identify the causes and effects of the financial and operational problems these organizations are experiencing.An incident with consequences is the cause of some operational or financial problems (the problem). To ascertain the cause and consequence of a financial or operational difficulty, it is possible to gain insight into the mechanism that is a predictor of the problem.This technique, referred to as perception (Pazhani and Abdullah, 2019), aids in the financial records' inclusion of sufficient detail about any area of organization and economic activity, allowing the substance and consistency of the expense accounts to be reported clearly. The company's legitimate and equitable financial situation might also be used to evaluate this.

            Financial reports provide an evaluation of the financial and market situations over the short and long terms. These are the positive outcomes of accounting data for a wide range of customers in any business. These specifications include a range of topics, including finance, manufacturing, and marketing. In general, knowledge technology requirements increase with the growth of the organization.When making an investment decision with clear awareness of decision ramifications, financial statements play a crucial role in corporate decision-making processes (Pazhani & Abdullah, 2019).The inclusion of records containing financial information is the main goal of financial reporting. Which reporting is the corporate language was mentioned. Also, as a corporation produces a variety of records at the end of a fiscal year, it can be argued that the capacity to extend accounting abilities is essential to business success.For this economic reporting to be meaningful, the specifics must be analyzed so that users may comprehend the parallels, differences, and patterns that occasionally emerge so that decisions can be taken.The accounting expertise in the financial report enables administrators to make more informed decisions. The availability and precise accounts of expenditures should be accurately reported to the extent that the organization may assess its true and equal financial position. Sufficient reports should be supplied in all domains of organization and economic operations.Customers who value financial outcomes include owners, creditors, banks, officials, employees, potential buyers, and the executive team of the organization. The aforementioned groups of people rely on information from corporate financial reports to ascertain the entity's status, which is a crucial indicator of how much funding will be contributed.This includes disclosing financial information that is relevant to decisions on savings, credit, and other corporate matters. The purpose of the current study was to analyze the accounting theory governing how income is determined while outlining the numerous approaches to measuring income and their effects on financial reporting.

2.1 Literature Review

            Midway through the 1990s, accounting professors and practice managers began to play a considerable, though not completely dominant, role in value-based management approaches for shareholders. These management techniques include management accounting strategies that were created to direct management choices and maximize an organization's worth.Having stated that, Friedman (2020) proposes that the only social responsibility of businesses are to increase profits, and that the only essential aim for SME firms is to maximize the company's value to investors (Othman et al., 2016). Recent developments have significantly increased funding for consumer advocates. Calls for transparency frameworks, which are crucial for the decision-making process, come next(Abdullah & Rahman, 2015). From a comparative perspective, scholars have discovered differences and similarities in accounting knowledge to contributing to the management of managerial decision making vs managerial-value management (Jaff, et al., 2021). In this way, we hope to approach management accounting from a more philosophical standpoint. Based on the objectives, certain management accounting functions and conditions are explained.