capital maintenance approach to net income

A measurement of net income arrived at by comparing the amount of total equity at the end of a period to the amount of total equity at the beginning of the period. For example, if Al Capone had $5 million of equity at the end of the year, but had only $1 million at the beginning of the year, the government could conclude that he earned $4 million during the year. This method is in contrast to the transaction approach which computes net income by subtracting the expense transactions from the revenue transactions.

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