01.02 Income Statement / Statement of Profit or Loss Flashcards
What is another name for the income statement?
Statement of profit or loss
True or false: the income statement measures performance of a firm as of a period in time.
False.
The income statement measures performance of a firm for a period of time.
What two sections are contained in the income statement?
Income from continuing operations and discontinued operations.
What two approaches are used to prepare income from continuing operations?
Multi-step approach
Single-step approach
What is the difference between the multi-step and single-step approaches?
Revenues and expenses relate to the company’s primary business operations, while gains and losses relate to peripheral or incidental transactions. The multi-step approach separates items related to the company’s primary business (i.e. operating items) from peripheral or incidental items (i.e. nonoperating items). The single-step approach does not.
What does the single-step approach involve?
Grouping revenues/gains and expenses/losses together.
The single-step format involves a presentation of income from continuing operations that is largely based on a single comparison of total revenues and gains to total expenses and losses.
What does the multi-step approach involve?
The multi-step format involves a presentation of income from continuing operations that includes multiple comparisons of revenues, expenses, gains, and losses.
The statement begins with revenues, then subtracts expenses to arrive at operating income. Following operating income, incidental or peripheral gains and losses (i.e. nonoperating items) are listed to arrive at income from continuing operations.
What choices does an entity have when they decide to dispose of a portion of its business?
Account for it as discontinued operations or a disposal of assets.
When would a disposal of a portion of an entity’s business be reported as discontinued operations?
A disposal is reported as discontinued operations when the disposal represents a strategic shift that will have a significant effect on the entity’s operations and financial results.
What is considered a strategic shift of a business’s operations?
A strategic shift includes the following:
1. Disposal/discontinuation of operations in a major geographic area
2. Disposal/discontinuation of a major line of business
3. Disposal of a significant investment accounted for under the equity method.
4. Disposal/discontinuation of other major “parts” of an entity
True or false: all assets and liabilities of the discontinued operations are presented separately on the balance sheet for all periods presented.
True
What are foreign currency transactions?
Foreign currency transactions are transactions of a domestic entity denominated in (to be settled in) a foreign currency but to be recorded on the domestic entity’s books in the domestic currency.
What is the impact if the domestic currency (dollar) weakens?
More dollars are required to buy one unit of foreign currency.
Receivable denominated in foreign currency - transaction gain
Payable denominated in foreign currency - transaction loss
What is the impact if the domestic currency (dollar) strengthens?
Fewer dollars are required to buy one unit of foreign currency.
Receivable denominated in foreign currency - transaction loss
Payable denominated in foreign currency - transaction gain
When are foreign currency transactions recorded?
Foreign currency transactions are initially recorded at the transaction date. At the balance sheet date and settlement date, the associated receivables/payables are revalued, and a gain/loss is recorded through net income.
