2.2 Income Statement

Question 1

Accounting income: revenue and expense recognition regarding timing and measurement.

• for revenue recognition: what is needed?
• expense recognition: affected by the following issues: deferral of marketing expenses and sales commissions;

Answer 1

completion of the earning process + assurance of payment

bad debt; Warranty; Deferral of cost of periodic major maintenance project; Accrual;

Question 2

Income statement

Revenues from sales of goods/services - Operating expenses = …

… + Other income and revenues = …

… - Financing costs = Recurring pretax income from continuing operations

Recurring pretax income from continuing operations - unusual/infrequent items = Pretax earnings from continuing operations

Pretax earnings from continuing operations- Income tax expense = …

Answer 2

Operating income from continuing activities

Recurring income before interest and taxes from continuing operations

Net income from continuing operations