Flashcards in Income Statement Deck (22):
What is an increase in net assets or settlements of liabilities by providing goods and services?
Revenues. These are related to a company's primary business
What is a decrease in net assets or incurred liabilities through the provision of goods or services.
Expenses. These are related to a company's primary business. Expenses provide a benefit to the firm. Losses do not
What is a net increase in equity or net assets from peripheral or incidental transactions?
What is a decrease in equity or net assets from peripheral or incidental transactions?
Losses. These do not provide benefit or value to the firm
What is the current type of Income Statement used under GAAP?
The all inclusive income statement
What are the exceptions to the All Inclusive Income Statement?
1.) Prior Period Adjustments - these are shown on statement of retained earnings
2.) OCI - Includes Foreign Currency translation, Unrealized holding gains and losses on securities held for sale, Pension plan adjustments, Certain deferred derivative gains and losses.
What does comprehensive income include?
Net Income + Other comprehensive income
What is the Current Operating Performance Income Statement?
Limits the income statement to normal, recurring items. Many other items would be run through owner's equity and thus, would escape attention of users who use the income statement to make decisions
What is defined as Revenues less expenses plus gains and losses?
Accounting Income. This records transactions, events and adjustments
What is defined as the change in net worth of a business enterprise during an accounting period?
What is the net worth of a business described as?
Fair Market Value of net assets (Rather than total owners equity per GAAP)
How is Economic Income Calculated?
Market Value of Net Assets at Jan 1 + Net Income for the period + Owner Investments - Dividends and stock repurchases = Market value at Dec. 31
What two portions is the Income Statement divided into?
1.) Top Portion - includes routinely occurring items that are part of continuing operations
2.) Bottom portion - Includes items specifically defined by GAAP as being unrelated to continuing operation
What does the Top Portion of the income statement include?
Routinely occurring items from continuing operation.
a.) Subtotal income from continuing operation
b.) GAAP is very loose in the top portion of the statement
c.) Income from continuing operations include all income items other than bottom items
What does the Bottom Portion of the income statement include?
Unrelated to continuing operations
a.) These are not representative of the firm's ability to generate income
b.) GAAP is very specific about these items
c.) Discontinued Operations are presented here. They are major components of an entity that are either sold or planned to be sold.
Are there any presentation requirements for continuing operation items on the income statement?
No, there is no prescribed presentation
What is the presentation order of Income Statement?
+Misc Revenues and gains
-Misc expenses and losses
+- Unusual or infrequent items
=Income from continuing operations before tax
-Less Income Tax Expense
=Income from continuing operations
+- Income from Discontinued Operations
What is income tax expense related to on the income statement?
Items from continuing operations. The tax effects of items below the continuing operation section are shown along with the item itself in a process called intraperiod tax allocation
What items can an intraperiod tax allocation be applied.
a.) Discontinued Operation
c.) Adjustment for retroactive accounting principle change
d.) Prior Period Adjustment
What two formats are accepted for presentation of continuing operations on the income statement?
Single Step and Multi Step
a.) Both provide same information, multi-step provides more subtotals and organization
b.) Income from continuing operations and net income are the same for both
c.) Format differences affect only the ordering in calculating income from continuing ops
What is the Single-Step format for Continuing Operations on the I/S?
Involves a presentation of income from continuing operations that is largely based on a single comparison. Total Revenues and gains are compared with total expenses and losses.