Module 1 Income Statement Flashcards
(58 cards)
What is the purpose of the income statement?
To provide information about the uses of funds in the income process, uses of funds that will never be used to earn income, sources of funds created by expenses, and sources of funds not associated with the earnings process.
Key components include expenses, losses, revenues, and gains.
What does the income statement inform about expenses?
It provides information about the uses of funds in the income process.
Expenses are costs incurred in the effort to earn revenue.
What are losses in the context of an income statement?
Uses of funds that will never be used to earn income.
Costs incurred for peripheral or incidental transactions.
What are revenues according to the income statement?
Sources of funds created by expenses.
Amounts earned from the sale of goods or services.
What are gains in the income statement?
Sources of funds not associated with the earnings process.
Gains typically arise from transactions outside the normal course of business.
What is the primary purpose of the income statement?
Determining profitability, value for investment purposes, and creditworthiness
How does the income statement help in predicting future cash flows?
It provides information about the amounts, timing, and uncertainty of cash flows based on past performance
List three uses of the income statement.
- Determining profitability
- Assessing value for investment purposes
- Evaluating creditworthiness
What is an example of an unexpired cost?
Inventory
Inventory represents goods available for sale or use, which have not yet been expensed.
What does unexpired (prepaid) cost of insurance refer to?
The amount paid for insurance coverage that extends into future periods
This cost is recorded as an asset until the coverage period is used.
What is the net book value of fixed assets?
The original cost of fixed assets minus accumulated depreciation
This value reflects the asset’s remaining value on the balance sheet.
What does the unexpired cost of patents represent?
The portion of the patent’s cost that has not yet been amortized
This cost is considered an intangible asset until it is fully amortized over its useful life.
An unexpired cost is an ____________.
Asset on the balance sheet
An expired cost is an _________
Expense on the income statement
What should be reported separately as part of income from continuing operations?
Items of income or loss that are unusual or infrequent (or both)
These items must be clearly disclosed in the financial statements.
How should the nature of unusual or infrequent items be disclosed?
On the face of the income statement or in the footnotes
This ensures transparency and clarity for financial statement users.
What does the multiple-step income statement report separately?
Operating revenues and expenses, nonoperating revenues and expenses, and other gains and losses.
What is a single-step income statement?
A presentation of income from continuing operations where total expenses (and losses) are subtracted from total revenues (and gains)
What does ‘net of tax’ refer to?
The amount remaining after taxes
What is the primary purpose of calculating amounts ‘net of tax’?
To provide a more accurate representation of actual income or profit after tax obligations.
What are discontinued operations reported as in the income statement?
Reported separately from continuing operations, net of tax
What can a discontinued operation include?
A component of an entity, a group of components of an entity, or a business or nonprofit activity
What types of items can be reported within discontinued operations?
Impairment loss, gain or loss from actual operations, gain or loss on disposal
When are amounts included in discontinued operations?
In the period in which they occur
