2.2 Statement of Income Flashcards
Nature of the Income Statement:
What type of accounts are income statement elements reported in?
nominal or temporary accounts
Nature of the Income Statement:
Calculate net income or loss
Revenues - Expenses + Gains - Losses
Nature of the Income Statement:
How are income statement accounts closed at the end of the period?
to permanent (real) balance sheet accounts
Nature of the Income Statement:
How is income or loss closed at the end of the period?
closed to retained earnings
Nature of the Income Statement:
Where are recognized amounts not included in continuing operations reported on the income statement?
separate section for discontinued operations
Nature of the Income Statement:
When is the term “continuing operations” used?
only when a discontinued operation is reported
Nature of the Income Statement:
Identify the 5 transactions not included in net income
1 - transactions with owners
2 - error corrections
3 - items reported initially in other comprehensive income
4 - transfers to and from appropriated retained earnings
5 - effects on prior periods of accounting changes
Income Statement Format:
Identify the 3 formats of the income statement
1 - single step
2 - multiple step
3 - condensed
Income Statement Format:
Define the single step income statement
- one subtraction necessary for net income
- provides one grouping for revenues and gains and one for expenses and losses
Income Statement Format:
Define the multiple-step income statement
- matches operating revenues and expenses in a section separate from nonoperating items
- It enhances disclosure by presenting subtotals
Income Statement Format:
Define the condensed income statement
- most common method of presentation
- includes only the section totals of the multiple-step format
- enhanced disclosure of each line item is presented in the notes to the financial statements
Income Statement Sections:
Identify the 7 sections of the income statement
1 - cost of goods sold
2 - cost of goods manufactured
3 - selling expenses
4 - administrative (general) expenses
5 - interest expense
6 - items unusual, infrequent in nature or both
7 - discontinued operations
Income Statement Sections:
Define cost of goods sold
equals purchases for a retailer or cost of goods manufactured (COGM) for a manufacturer, adjusted for the change in finished goods (FG) in inventory
Income Statement Sections:
Calculate Cost of Goods Sold
Beginning FG Inventory
+ Purchases or COGM
- Ending Inventory
= Cost of Goods Sold
Income Statement Sections:
Define cost of goods manufactured
- equals the period’s manufacturing costs adjusted for the change in work-in-process
- It also may be stated as cost of goods sold adjusted for the change in finished goods inventory
Income Statement Sections:
Calculate cost of goods manufactured
HINT: (2)
Beginning WIP
+ Sum of periodic manufacturing costs
- Ending WIP
= Cost of goods manufactured
Ending FG inventory
+ Cost of goods sold
- Beginning FG inventory
= Cost of goods manufactured
Income Statement Sections:
Provide examples of selling expenses
HINT (5)
1 - sales representatives salaries, commissions & traveling expenses
2 - sales department rent, salaries, and depreciation
3 - communications (internet) costs
4 - shipping costs
5 - advertising costs
Income Statement Sections:
Provide examples of administrative (general) expenses
HINT: 6
1 - accounting, legal & other fees for professional services
2 - officers’ salaries
3 - insurance
4 - wages of office staff
5 - miscellaneous supplies
6 - office occupancy costs
Income Statement Sections:
How is interest expense recognized?
as a passage of time
Income Statement Sections:
How are material items reported that are unusual in nature, infrequent in occurrence or both?
- as a separate component of income from continuing operations
- must NOT be reported net of taxes
- Gains or losses of a similar nature that are not individually material must be aggregated
- nature & effect disclosed in notes to financial statements or in the income statement
- effects of such items on earnings per share must NOT be presented on the income statement
Income Statement Sections:
How must an entity report discontinued operations?
it must be presented in a separate section AFTER income from continuing operations
Income Statement Sections:
When is intraperiod tax allocation required?
when discontinued operations is reported
Income Statement Sections:
Identify the categories income tax expense or benefit are allocated to during intraperiod tax allocation due to discontinued operations
HINT : 4
1 - continuing operations
2 - discontinued operations
3 - other comprehensive income
4 - items debited or credited directly to other components of equity
Income Statement Sections:
Identify the 2 items reported separately in the discontinued operations section of the income statement
- Income or loss from operations of the component unit (including any gain or loss on disposal)
- Income tax expense or benefit
Income Statement Sections:
Is EPS required to be disclosed for discontinued operations? If so, how is it to be reported?
- Yes, EPS must be disclosed on the face of the statement or in the notes
