Chapter Four Flashcards
(79 cards)
statement of operations/statement of earning
income statment
reports a co’s profit during a particular reporting period
comprehensive income
includes a few types of gains/losses excluded from income statement
statement of cash flows
provides info about cash receipts and cash payments
FULL Income statement example
Income from Continuing Operations:
Sales Revenue
COGS
Gross Profit
Operating Expenses:
Selling Expenses
General and Admin Expenses
Research and Development expense
restructuring costs
total operating expenses
Operating income
Other Income:
interest revenue
interest expense
gain/loss on sale of investments
income from continuing operations before income taxes
income tax expense
Income from Continuing Operations
Discontinued Operations:
Loss from operations of discontinued component
income tax benefit
Loss on discontinued operations
Net Income
Earnings Per Share - Basic:
Income from continuing operations
discontinued operations
Net Income
Earnings per common share - diluted:
Income from continuing operations
Discontinued operations
Net Income
Income from continuing operations
reports the revenues, expenses, gains and losses that have occured during reporting period
is it possible to establish a causal relationship between rev and exps?
Expenses: YES: because reported in the same period that related revenue is recognized
Example: if sell toy today, money you pay to make that toy (COGS) is part of what helped earn you money (rev)
Revenues: NO: because expense to a particular period, allocate it over several periods, or expense it as incurred
Example: spread out or happen at different times
How do gains and losses arise
when a co sells investments or PP&E for amount that differs from recorded amount
Income from continuing operations consists of what three parts
operating items
non operating items
income tax
operating items
Sales rev
COGS
GP
Operating expenses:
Selling
G&A
R&D
Restructuring costs
Total Operating expenses
Operating income
nonoperating items
Other income:
interest income
interest expense
gain on sale of investment
income from continuing operations before income taxes
income taxes
income tax expenses
income from continuing operations
What is the major difference between single and multiple step income statement
multiple step separately classifies income statment items by operating and nonoperating
GP
reports series of intermediate subtotals:
example: operating income, income before tax expenses, etc.
income statement single step
Revenues and gains:
SR
Interest Revenue
Gain on sale of investments
Total Rev/gains
Expenses and losses:
COGS
Selling exp
G&A exp
R&D exp
Interest exp
total expenses and losses
income before taxes
income tax expenses
net income
income smoothing
within rules allowed by GAAP
smoother patterns in earnings over time by altering assumptions and estimates
overestimating expenses in current year to reduce net income
reversing those estimates in future years to increase net income
classification shifting
shifting operations and expenses to a non operating expenses classification to report fewer operating expenses and higher operating income
what are restructuring costs
money you spend to make big changes in how your business works hoping it will help you in the long run (one time expenses to improve long term)
include costs associated with management’s plans to materially change the scope of business operations
recognized in the period the exit or disposal cost obligation actually is incurred
examples of restructuring costs:
termination benefits payable to employee to be terminated:
to be accrued in periods the employees render their service
costs associated with closing facilities:
recognized when s/g associated with those activities received
operating income and earnings quality
restructuring costs
long lived asset impairments
revenue issues affecting earnings quality
long lived asset impairments
tangible or intangible
asset balance reduced if there has been significant impairment of value
BS (BV value) > market or fair value wil lead to loss on impairment
revenue issues affecting earnings quality
company loses major customer that cannot be replaced
misstatement of revenue
premature revenue recognition
non-operating income and earnings quality
basically what is non operating income
some items in an IS relate only tangentially to normal operations
ex:
interest income or interest expenses
gains/losses on sales of investments
this is nonoperating items
what is earnings quality
is a company’s profits reliable and sustainable - not fraudulent
ability of current earnings to predict future earnings
what are non-GAAP Earnings
companies required to report earnings, revs, exps based on GAAP
NON GAAP EARNINGS exclude certain revs and exps
what are examples of non GAAP earnings
restructuring costs, acquisition costs, write-downs of impaired assets, stock based compensation
