The
Definition Of

Earning power

Earning power means the normal level of income to be obtained in the future. Earning power differs from actual net income by the amount of irregular revenues, expenses, gains, and losses. Users are interested in earning power because it helps them derive an estimate of future earnings without the “noise” of irregular items.

Share it:

More from this Section

  • Declining-balance
    Declining-balance method is a depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual...
  • Period costs
    Period costs are costs that are matched with the revenue of a specific time period rather than included as part of the cost of a salable product.
  • FOB shipping point & FOB destination
    FOB shipping point means that the seller places the goods free on board the carrier, and the buyer pays the freight costs. FOB destination means that the seller places the goods...
  • Under- or Overapplied overhead
    Underapplied overhead means that the overhead assigned to work in process is less than the overhead incurred. Overapplied overhead means that the overhead assigned...
  • Sales budget
    Sales budget is an estimate of expected sales revenue for the budget period. The sales budget is the first budget prepared. Each of the other budgets depends...
  • Purchase returns & Allowances
    Purchase return means a return of goods from the buyer to the seller for a cash refund if the purchase was for cash or, credit if the sale was made on credit.
  • Prepaid expenses
    Prepaid expenses or prepayments are companies record payments of expenses that will benefit more than one accounting period, an asset account is increased...