17: Income Statements Flashcards
Income statement equation
revenues- expense = net income
Expenses are grouped together by their ____ or ____ function
nature
function
Example of expense group by function
COGS
Example of expense group by nature
depreciation expenses
the amount that remains once the cost of a product or service is subtracted from revenue
Gross profit
Revenue - COGS=
Gross profit
Gross profit- operating expenses (SG&A)=
operating profit
For nonfinancial firms, operating profit is the amount that remains before _____ and _____ are considered
financing costs and income taxes
Operating income
+- other revenue/expense
+- unusual or infrequent items
-Taxes
Net income
For financial firms _____ expense is considered an operating expense
interest
When a firm has ______ in a subsidiary, the statements of the two firms are consolidated
controlling interest
The share of a subsidiary’s income that a firm does not own is reported in the firms income statement as ________.
Non-controlling interest/minority owner’s interest
Revenue is recognized when _____
goods are transferred to the buyer
The central principle of the converged standards for revenue recognition for IASB and FASB is?
revenue is recognized when the firm has transferred a good or service to the customer
How is revenue recognized for long term projects?
based on the firm’s progress towards completion of performance obligation (contract)
All revenues are grouped together and all expenses are grouped together in this presentation format
single step
presentation includes subtotals like gross profit and operating profit
multi-step
Under _______________, expense recognition is based on the matching principle
accrual basis of accounting
Matching principle: expenses for producing goods and services are recognized ______
in the period in which the revenue is recognized (when the goods have been transferred)
expenses that are not directly tied to generating revenue, like administrative costs,
period costs
period costs are expensed when?
the period they occur
If a firms sells good on credit or provides warranty to the customer, the matching principle requires the firm to ______________
establish a BDE or warranty expense
Assets generate more benefit in the early year of their lives, make the _____ depreciation method more appropriate for matching revenues and expenses
accelerated
Straight line method results in _____ depreciation expense and _____ net income, than accelerated methods
lower, higher
DDB depreciation stops once the _____ has been reached
residual value
LIFO is popular because it results in ____ COGS, in an ______ environment, creating ______ benefits
higher
inflationary
income tax
which inventory method is not permitted under IFRS?
LIFO
