Final answer:
To adjust income from continuing operations, one must exclude non-regular transactions. Using the example provided, the firm's accounting profit is calculated by subtracting total expenses (labor, capital, and materials) from sales revenue, resulting in an accounting profit of $50,000.
Step-by-step explanation:
To record corrections to income from continuing operations, one needs to make certain adjustments to the reported income to reflect the actual earnings from regular business activities. This often involves excluding any extraordinary or non-recurring transactions. For example, if a company sells a division of its business, the gain from this sale would be excluded from the income from continuing operations since it is not a regular part of the business's income-generating activities.
Self-check question: if a firm had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, then to calculate the firm's accounting profit, we subtract the total expenses from the sales revenue:
Accounting Profit = Sales Revenue - Total Expenses
Accounting Profit = $1,000,000 - ($600,000 + $150,000 + $200,000)
Accounting Profit = $1,000,000 - $950,000
Accounting Profit = $50,000