A bank, for example, books interest paid on a loan as current revenue. However, if the borrower subsequently defaults, that presumed interest payment would, in retrospect, be seen as a partial return of principal and not as income. We seek to cope with this uncertainty by constructing loan-loss reserves, but the adequacy of those reserves is also subject to a forecast.
Similarly, depreciation charges against income, based on book values, are very crude approximations of the decline in the economic value of physical plant and equipment. The actual decline will not be known until the asset is retired or changes ownership. Another example is the projection of future investment returns on defined-benefit pension plans, which markedly affects corporate pension contributions and, hence, pre-tax profits.