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What is the income statement for?
it provides information about the uses of funds in the income process, the uses of funds that will never be used to earn income, the sources of funds created by those expenses, and the sources of funds not associated withthe earning process
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What is the use of the income statement
useful in determining profitablity, value for investment purposes, and credit worthiness. also helpful in predicting future cash flow based on past performance.
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Income statement
what is cost
is an amount expended for items such as capital assets, services, and merchandise received. it is the amount actually paid for something.
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Income statement
what is unexpired costs
costs that will expire in future periods and be charged against revenues from future periods
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income statement
list some unexpired cost
- inventory
- prepaid insureance
- net book value of fixed assets
- unexpired cost of patents
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income statement
match the unexpired costs to the expired costs
unexpired cost ( asset)--inventory----prepaid insurance----net book value of fixed assets-----unexpired cost of patents
Expired Cost (expense)---depreciation expense----cost of goods sold----patents expense(amortization)----insurance expense
inventory ----- cost of goods sold
Prepaid insurance ----- insurance expense
Net book value of fixed assets ---- Depreciation expense
Unexpired cost of patents ----- Patents expense (amortization
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Income statement -- Gross Concept
How are revenues reported
at their gross amounts----less allowance for returns and discounts given
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Income statement -- Gross Concept
How are Expenses reported
at gross amounts
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Income statement --- Net concept
How are gains reported
at their net amounts
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Income statement --- Net Concept
How are losses reported
at net amounts
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income statement -- net concept
A ---------------------------- is the recognition of an asset either not in the ordinary course of business or withut the incurrance ofan expense
gain
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Income Statement -- net concept
A ----------------------------------is cost expiration either not int he ordinary course of business or without the generation of revenue.
loss
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income statement
what does gross of tax mean
before taxes are taken out
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Income statement
what does net of tax mean
after taxes are taken out
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income statement
what are the major components of the income statement
- income/Loss from continuing operations
- income/loss from discontinued operations
- extraordinary items
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Retained earnings
what is a major compoent of the statement of retained earnings
cumulative effect of change in accounting principle
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put the following in presentation order of an income and retained earning statement
extraodardinary items
cumulative effect of change in accounting principle
income /loss from continuing operations
income / loss from discontinued operatoins
- income /loss from continuing operations
- income / loss from discontinued operatoins
- extraodardinary items
- cumulative effect of change in accounting principle
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Income statement
for the following items, what is reported net of tax and what is reported as gross of tax
extraodardinary items
cumulative effect of change in accounting principle income /loss from continuing operations
income / loss from discontinued operatoins
- extraodardinary items --net of tax
- cumulative effect of change in accounting principle -- net of tax
- income /loss from continuing operations -- gross of tax
- income / loss from discontinued operatoins -- net of tax
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Income statement
What does IDEA stand for
it helps to present the income statement
Income/loss from continueing operations
income/loss from Discontinued operations
Extraordenary items
cumulative effect of change in Accounting principle
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Income statement---income from continueing operations
what is a multiple income statement
it reports operating revenues and expenses separately from non-operating revenues and expenses and other gains and losses.
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income statement---income from continueing operations
what is the benefit of the multiple step income statement
it has enhanced user information (because the line items presented often provide the user with readily avaiable data with which to calculate various analytical ratios)
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income statement---income from continueing operations
list what items on the multi-step income statement are normal operations
- net sales
- cost of sales
- gross margin
- selling expenses
- general and administrative expenses
- depreciation expense
- income/loss from operations
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income statement--income from continueing operations
list what items on the multi-step income statement are non-normal operations
- other revenues and gains
- interest income
- gain on sale of fixed asset
- other income
- other expenses and losses
- interest income
- loss on sale of fixed assets
- income before unusual items and income tax
- unusual or infrequent items
- loss on sale of avaiable-for-sale securities
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income statement--income from continueing operations
what are inventory cost
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income statement--income from continueing operations
What are selling expenses
- Freight out
- salaries and commissions
- advertising
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income statement--income from continueing operations
What are General and Administrative expenses
- officers salaries
- accounting and legal
- insurance
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income statement--income from continueing operations
What are non-operating expenses
- Auxiliary activities
- interest expense
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income statement
what is a single step insome statement
it is the presentation of income from continuing operations, total expenses are subtracted from total revenues all in one step. Very simple design / just the facts
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income statement--discontinued operations
Discontinued operations are reported --------------------from continueing operations in the income statement
separately
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income statement--discontinued operations
discontinued operations are reproted ------------ if tax
net
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income statement--discontinued operations
discontinued operations can consist of what?
- impairment losses
- gain/loss from actual operations
- gain/loss on disposal
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income statement--discontinued operations
all amounts of discontinued items are reported in the -------------------------------------------------------------------.
period in which they occur
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income statement--discontinued operations
what is a component of an entity
it is the lowest part of an entity for which operations and cash flows can be clearly distinguished, both operationally and for financial reporting
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income statement--discontinued operations
Under U.S. GAAP what can a component of an entity be?
- An operating segment
- A reportable segment
- A reporting Unit
- A subsidiary
- An asset group
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income statement--discontinued operations
Under IFRS what can a component of an entity be?
- A separate major line of business or geographical area of operations
- A subsidiary aquiried exclusively with a view to resale
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income statement---discontinued operations
a component of a business (U.S. GAAP) or a disposal group ( IFRS) is classified as held for sale in the period in which all of these criteria are met
- 1. management commits to a plan to sell the component
- 2. the compnent is available for immediate sale in its present condition
- 3. An active program to locate a buyer has been inititated
- 4. The sale of the compnent is probable and the sale is expected to be complete within one year
- 5. the sale of the component is being actively marketed
- 6. actions required to complete the sale make it unlikely that signifcant changes to the plan will be made or that the plan will be withdrawn
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income statement--discontinued operations
under IFRS --------------- a component can be classified as held for sale the individual assets and liabilities of the component must be measured in accordance with applicatable standards and any resulting -------------------------------- must be recognized
before/gains and losses
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income statement--discontinued operations
the results of operations of a component of an entity will be reported in discontinued operations if either the component
- 1. has been disposed of
- 2. is classified as held for sale
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income statement--discontinued operations
what must be present inorder for discontinued operations to be reported
it is eliminated from ongoing operations--no cash flows from the component
there is no significant continueing involvement
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income statement--discontinued operations
what types of items are included in the results of discontinued operations
- 1. results of operations of the component
- 2. gain or loss on disposal of the component
- 3. impairment loss of the component
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income statement--discontinued operations
the results of discontinued operations of a component are reported in discontinued operations in the period the component is either---------------------------------------------------------------
disposed of or is held for sale
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income statement--discontinued operations
Are assets within the component depreciated or amortized after it is in discontinued operations?
No
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income statement
a gain or loss not preveiously recognized that results from the sale of the componeent is recognized at the --------------------------and not before
date of sale
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income statement
Gains or losses anticipatied to occur in the future are---------------------------------they occur
not recognized until
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income statement
adjustments to amounts previously reported in discontinued operations that are directly related tothe disposal of a component of an entity in a prior period are classified in --------------------------------------------------discontinued operations
the current period in
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income statement
A component that is classified as avaiable for sale is measured how?
at the lower of its carrying amount or fair value less costs to sell
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income statement
How are the results of discontinued operations, net of tax, reported
a separate component of income before extraordinary items
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insome statement
where and how on the income statement is discontinued operations listed
as a separate component before extraordinary items
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The results of dicontined items are reported -----------------of tax
net
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income statement
The results of discontinued operations, net of tax, are reported as a -------------------------------------.
separate component of income before extraordinary items
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income statement
a gain or loss recognized on the disposal shall be disclosed either on the ------------------------------------------or in the --------------------------------------------
face of the income statement / notes to the financial statements
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income statement
as part of its convergence with IFRS, U.S. GAAP requires the recognition of a ------------------------------------------------------------------------------------
liability for the costs associated with an exit or disposal activity
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income statement
What are some cost associated with exit or disposal activities that need to be recognized
- 1. involuntary termination benefits
- 2. costs to terminate a contract that is not a capital lease
- 3. other costs associated with exit or disposal activities including costs to consalidate faciltites or relocate employees.
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income statement
a liability associated with an exit or diposal activity should be recognized only when all of the following critera are met
- 1. an obligating event has occurred
- 2. the event results in a present obligation to transfer assets or to provide services in the future (payment)
- 3. the entiry has little or no discretion to avoid future transfer of assets or providing of services
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income statement
in disposal activities, the liability should be measured at------------------------------
fair value
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income statement
costs associated with an exit or disposal activity related to a discontinued operation will be reported in ---------------------------------------------------------------------
discontinued operations
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income statement
costs associated with an exit or disposal activity not related to a iscontinued operation will be reported in ------------------------------------------------------------------
income from continueing operatoins
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income statement
Under U.S. GAAP what are extraordingary items and transactions and other events that are
- 1. material in nature
- 2. fo a character significantly fidderent from the typical or customary business activities
- 3. not expected to recur in the foreseeable future infrequent
- 4. not mormally considered in evaluating the ordinay operating results of an enterpirise
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income statement
extraordary items must be ----------------------------------------------disclosed in the income statement
separately
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income statement
list some examples of extraordingary items
- 1.The abandonment of or damage to a plant due to an infrequent earthquake or an infrequent flood
- 2. an expropriation of a plant by the goverment
- 3. a prohibition of a product line by a newly enacted law or regulation
- 4. certain gains or losses from extinguishment of long term debt provided they are not part of the entity recurring operations and thus meet the criteria of unusual and infrequent
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insome statement
extraordinary items are ---------------------of tax
net
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income statement
a gain or loss from a foreign curreny transaction is ------------------------extraordinary item
not
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retained earning statement
a change is accounting principle is ----------------of tax
net
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retained earning statement
Accounting changes are broadly classified as
- 1. changes in accounting estimate
- 2. changes in accounting principle
- 3.changes in accounting entity
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retained earning statement
error corrections are ----------------------------------------------accounting changes
not considered
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retained earnings statement
when a change in account estimte occurs, are the prior periods restated?
no
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retained earnings statement
what events result from a change of accounting principle
- 1. changes in the lives of fixed assets
- 2. adjustments of year end accrual of officers saleries and bonus
- 3. write down of obsolete inventory
- 4. material nonrecurring IRS adjustments
- 5. settlement of litigation
- 6. Changes in accounting principle that are inseparable from a change in estimate
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retained earning statement
changes in accounting estimate are accounted for -------------------------------. They ---------------- affect previous periods.
prospectively / do not
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retained earnings statement
If there is a change in the accounting estimate, where should the affect of that change be disclosed
in the notes of the finacial statement
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retained earnings statement
A change from one accounting principle to another --------------------------------------------------accounting principle
acceptiable
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retained earning statement
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