1.3 Income Statement and Statement of Comprehensive Income Flashcards
Name 4 categories of the Income statement report
*Revenues
*Gains
*Expenses
*Losses
Are these captured on the Income Statement?
1. Transactions with owners
2. Prior-period adjustments (such as error correction or a change in accounting principle, which are covered in Subunit 1.4)
3. Items reported initially in other comprehensive income
Transfers to and from appropriated retained earnings
No. they are on the Changes in Equity.
Retail Business
How do you calculate Cost of Goods sold?
Beginning inventory $10,000
Plus: Net purchases 14,000
Plus: Freight-in 1,000
Goods available for sale $25,000
Minus: Ending inventory -5,000
Cost of goods sold $20,000
Manufacturer
Calculate the cost of goods manufactured
* Beginning direct materials inventory $3,000
* Beginning finished goods inventory 6,000
* Beginning work-in-process inventory 5,000
* Cost of goods manufactured $15,000
* Direct labor costs 5,000
* Direct materials used in production $5,000
* Ending direct materials inventory -1,000
* Ending finished goods inventory -11,000
* Ending work-in-process inventory -4,000
* Manufacturing overhead costs*(Fixed + Variable) 4,000
* Purchases during the period 3,000
* Total manufacturing costs $14,000
Cost of goods sold $10,000
What is the difference between a Single Step and a Multi-Step Income Statement?
Single Step: Straight list of Net Sales - Expenses.
Multi-step has subtotals demondstrating
*Sales-COGS=Gross Profit
A manufacturer discontinued a main operation. no longer making planes.
How do you change the income statement?
Two sections, continuing operations and discontinued operations.
Discontinued operations are shown AFTER TAXES as a Gain or loss.
What are gains as compared to revenue?
- Revenues are inflows or other enhancements of assets or settlements of liabilities (or both) from delivering or producing goods, providing services, or other activities that qualify as ongoing major or central operations.
- Gains are increases in equity (or net assets) other than from revenues or investments by owners.
What is the matching principle as it relates to the sale of manufactured goods?
Cost of goods sold is recognized at the time the goods are sold, which follows the matching principle.
How do you calculate:
Ending direct materials inventory?
- Beginning direct materials inventory
- $3,000
- Purchases during the period
- 3,000
- Ending direct materials inventory
- (1,000)
How do you calculate Total manufacturing costs?
- Direct materials used in production
- $5,000
- Direct labor costs
- 5,000
- Manufacturing overhead costs* (Fixed + Variable)
- 4,000
- Total manufacturing costs
- $14,000
How do you calculate the total cost of manufactured?
- Beginning work-in-process inventory
- 5,000
- Ending work-in-process inventory
- (4,000)
- Cost of goods manufactured
- $15,000
How do you calculate the Cost of goods sold in manufacturing items for sale?
*Direct Materials
*Total Manufacturing Costs
*Cost of goods manufactured
*Cost of goods Sold
1.3 outline Text
- Beginning finished goods inventory
- 6,000
- Ending finished goods inventory
- (11,000)
- Cost of goods sold
- $10,000
Name some selling and administrative expenses used to calculate cost of goods sold.
*Sales
-Sales salaries
-Commissions
-Traveling Expenses
-Sales department salaries & expenses
-Rent
-Advertising
-Credit card and collections costs
Interest Expense
-Based on time
-Bonds, notes, finance leases
-The effective interest method is used.
How is the effective interest rate on a bond sold below face value calculated?
Face Value $10,000
Purchase Price $9,500
Interest Rate 5% / $500 year
Interest / Purchase = %
$500/9,500 = 5.26%
Also known as the annual percentage rate (APR)
What is the fund theory?
Economic Resources - Liabilities or Economic Resources Owed = Stockholders’ Equity
