Q24-11RQ - Horngren'S Financial And Managerial Accounting

Question

Explain the difference between a lag indicator and a lead indicator.

Step-by-Step Solution

Answer

Answer

A lag indicator measures past performance while a lead indicator forecasts future performance.

Step 1: Meaning of Lag indicator

For instance, the frequency of accidents on a construction site is a lagging safety indicator. Lagging indicators are output measurements in this case.

Step 2: Difference between a lag indicator and a lead indicator

The distinction between the two is that a leading indicator may affect change, but a trailing indicator can only reflect what has already occurred.