If you’re a business owner with publicly held common stock or potential common stock, ASC 260: Earnings Per Share is something you need to be familiar with. This Topic provides guidance on the “computation, presentation, and disclosure requirements for earnings per share (EPS) for entities with publicly held common stock or potential common stock.” In this blog post, we’ll discuss what ASC 260 covers and how it can help you ensure your financial statements are in compliance.
What is GAAP?
GAAP is a common set of accounting principles, standards, and procedures. Public companies in the United States must follow GAAP when they compile their financial statements. To that end, the Financial Accounting Standards Board (FASB) maintains GAAP. Moreover, the board issues new rules as necessary to ensure that GAAP remains up-to-date.
Where Can I Research GAAP?
FASB provides free online access to the Accounting Standards Codification, which is the only authoritative source for US GAAP. FASB and the AICPA also provide access to other authoritative literature that supplements the GAAP Hierarchy.
To access the Accounting Standards Codification, visit asc.fasb.org. Anyone can access the codes using a basic account. For more advanced features you can set up a professional account. To that end, if you work at a company subject to GAAP rules, your company likely has a professional account.
What Is Earnings Per Share (EPS)?
Earnings per share (EPS) is a financial ratio that measures a company’s profitability. EPS tells you how much profit a company generates for each share of its stock. In other words, it shows how much money shareholders would make if they sold all of their shares at the current market price.
There are two types of EPS:
– Basic EPS is calculated by dividing a company ‘s net income by the number of shares outstanding.
– Diluted EPS is calculated by dividing a company’s net income by the total number of shares that could be outstanding if all dilutive securities were exercised.
What is ASC 260?
ASC 260 is a GAAP Topic that “provides guidance on the computation, presentation, and disclosure requirements for earnings per share (EPS) for entities with publicly held common stock or potential common stock.” ASC 260 applies to all companies with publicly traded equity securities. In other words, ASC 260 does not apply to private companies.
ASC 260 covers a lot of ground. In general, the Topic includes guidance on the following:
-Computation and presentation of EPS
Why Does It Matter?
The presentation and disclosure of financial statements can have a major impact on the decisions made by users of those statements. For example, if a company or individual is considering investing in another company, the investor will want to know any errors in financial statements or changes in methodology that could impact the valuation of the company.
ASC 260 follows the framework set by ASC 205 and requires companies to adequately disclose their accounting policies and the impact their policies have on the financial statements provided.
This section ensures that investors have enough information to make informed decisions and that companies cant mask their performance.
In this blog post, we discussed ASC 260: Earnings Per Share. ASC 260 covers a lot of ground and in general includes guidance on: Basic EPS, Diluted EPS, computation and presentation of EPS, and EPS disclosures. ASC 260 follows the framework set by ASC 205 and requires companies to adequately disclose their accounting policies and the impact their policies have on the financial statements provided. This section ensures that investors have enough information to make informed decisions about investing in a company and that companies can’t mask their performance.
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