 Hello. In this discussion, we will discuss the discussion question of compare risk and return. This is going to be a very common essay question, possibly not as common in financial accounting but can be found within financial accounting and very common within discussions of finance and managerial accounting. When considering the idea of risk and return, we're often looking at those financial statements. That's why within financial accounting, as we are creating financial statements, we're making those financial statements for end users. But it's good to keep an idea of what the end goal of those end users are, what they're trying to measure with the financial statements, what the financial statements will be used for, in part, the measurement of the risk and return is something that the end users are typically going to be trying to discern from the financial statements. This could be a question that would be then applicable to and asked within financial accounting as well. When we consider risk and return, what we're really thinking about when we're thinking about the financial statements, the return component is going to be basically the net income. That's what's measuring what is happening over time. How much are we getting over time? How much revenue did we make over a certain timeframe? That's why we need two dates. When you measure revenue, you need a beginning date. You need an ending date in order to figure out what that revenue has done. And same for the expenses, you need a beginning date and an ending date to know what you had to consume in order to generate that revenue. The difference between those two then being the net income. So the net income is the outcome what has happened over a certain time. Risk then has to do with the risk that we are taking in order to generate a return in order to generate in this case, if we're considering it in terms of net income, how much risk is involved in order to generate a return in terms of net income. Now typically when we look at risk and return, when we compare the two, we have to be aware of the idea that most of the time, when we're looking at those types of projects that have a greater return or potential return, that they're going to typically be more risky. So risk and return go hand in hand in that way. When we're considering ways to get a higher return, we also typically are taking on more risk, meaning we could have more likelihood of not reaching higher returns and having a problem with that higher risk. If we're looking at lower risk, then it's possible to achieve that most of the time typically with or if we're looking at a lower return, it's possible to achieve that at lower risk. Now when we think about this, we often think about this in terms of putting money into stocks or bonds or whether we should put money into the bank. That's the typical comparison of risk and return. If we put something into a more risky type of investment, if we put money into stocks, it's possibly more risky than if we just put money into a savings account. However, the returns on stocks and bonds are typically thought to be potentially a lot larger than the returns that we would get just putting money into a CD. So that's kind of the comparison that we're looking at when we're considering the returns in terms of how much income we're going to make, how much net income. We typically have a similar comparison when looking for the larger returns in terms of business with comparison to the amount of risk we're taking on versus the return we will receive. Therefore, when considering this type of question, you get a discussion question or essay question, compare risk and return, then you may want to first do what we have done in the past and define those two terms. What is risk and what is return? And then how do those two things apply out risk going to be the idea that we could lose something, the return being something that could be measured when we're thinking about the creation of the financial statements within financial accounting is kind of measured by the net income. And how then does risk and return relate? Typically, the higher the return we are looking for, there's usually more risk and the lower returns we're looking for, there's usually less risk.