Ch. 4 (IFSA) Summary Flashcards
___ presents revenue, expenses, and net income.
The income statement
The income statement presents ___, expenses, and net income.
revenue
The income statement presents revenue, ___, and net income.
expenses
The income statement presents revenue, expenses, and ___.
net income
The components of ___ include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- EPS
the income statement
The components of the income statement include:
- ___
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- EPS
revenue
The components of the income statement include:
- revenue
- ___
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- EPS
cost of sales
The components of the income statement include:
- revenue
- cost of sales
- ___
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- EPS
sales, general, and administrative expenses
The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- ___
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- EPS
other operating expenses
The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- ___
- gains and losses
- nonrecurring items
- net income
- EPS
nonoperating income and expenses
The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- ___
- nonrecurring items
- net income
- EPS
gains and losses
The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- ___
- net income
- EPS
nonrecurring items
The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- ___
- EPS
net income
The components of the income statement include:
- revenue
- cost of sales
- sales, general, and administrative expenses
- other operating expenses
- nonoperating income and expenses
- gains and losses
- nonrecurring items
- net income
- ___
EPS
___ that presents a subtotal for gross profit (revenue minus cost of goods sold) is said to be presented in a multi-step format. One that does not present this subtotal is said to be presented in a single-step format.
An income statement
An income statement that presents a subtotal for ___ (revenue minus cost of goods sold) is said to be presented in a multi-step format. One that does not present this subtotal is said to be presented in a single-step format.
gross profit
An income statement that presents a subtotal for gross profit (___) is said to be presented in a multi-step format. One that does not present this subtotal is said to be presented in a single-step format.
revenue minus cost of goods sold
An income statement that presents a subtotal for gross profit (revenue minus cost of goods sold) is said to be presented in ___ format. One that does not present this subtotal is said to be presented in a single-step format.
a multi-step
An income statement that presents a subtotal for gross profit (revenue minus cost of goods sold) is said to be presented in a multi-step format. One that does not present this subtotal is said to be presented in ___ format.
a single-step
___ is recognized in the period it is earned, which may or may not be in the same period as the related cash collection. Recognition of revenue when earned is a fundamental principal of accrual accounting.
Revenue
Revenue is recognized in ___, which may or may not be in the same period as the related cash collection. Recognition of revenue when earned is a fundamental principal of accrual accounting.
the period it is earned
Revenue is recognized in the period it is earned, which ___. Recognition of revenue when earned is a fundamental principal of accrual accounting.
may or may not be in the same period as the related cash collection
Revenue is recognized in the period it is earned, which may or may not be in the same period as the related cash collection. Recognition of revenue when earned is a fundamental principal of ___.
accrual accounting
In limited circumstances, ___ may be applicable, including:
- percentage of completion
- completed contract
- installment sales
- cost recovery.
specific revenue recognition methods
In limited circumstances, specific revenue recognition methods may be applicable, including:
- ___
- completed contract
- installment sales
- cost recovery.
percentage of completion
In limited circumstances, specific revenue recognition methods may be applicable, including:
- percentage of completion
- ___
- installment sales
- cost recovery.
completed contract
In limited circumstances, specific revenue recognition methods may be applicable, including:
- percentage of completion
- completed contract
- ___
- cost recovery.
installment sales
In limited circumstances, specific revenue recognition methods may be applicable, including:
- percentage of completion
- completed contract
- installment sales
- ___.
cost recovery
An analyst should ___ and adjust reported revenue where possible to facilitate comparability. Where the available information does not permit adjustment, an analyst can characterize the revenue recognition as more or less conservative and thus qualitatively assess how differences in policies might affect financial ratios and judgments about profitability.
identify differences in companies’ revenue recognition methods
An analyst should identify differences in companies’ revenue recognition methods and ___. Where the available information does not permit adjustment, an analyst can characterize the revenue recognition as more or less conservative and thus qualitatively assess how differences in policies might affect financial ratios and judgments about profitability.
adjust reported revenue where possible to facilitate comparability
An analyst should identify differences in companies’ revenue recognition methods and adjust reported revenue where possible to facilitate comparability. Where the available information does not permit adjustment, an analyst can characterize the revenue recognition as ___ and thus qualitatively assess how differences in policies might affect financial ratios and judgments about profitability.
more or less conservative
An analyst should identify differences in companies’ revenue recognition methods and adjust reported revenue where possible to facilitate comparability. Where the available information does not permit adjustment, an analyst can characterize the revenue recognition as more or less conservative and thus qualitatively assess how differences in policies might affect ___.
financial ratios and judgments about profitability
___ include the matching principle. Expenses are matched either to revenue or to the time period in which the expenditure occurs (period costs) or to the time period of expected benefits of the expenditures (e.g. depreciation).
The general principles of expense recognition
The general principles of expense recognition include ___. Expenses are matched either to revenue or to the time period in which the expenditure occurs (period costs) or to the time period of expected benefits of the expenditures (e.g. depreciation).
the matching principle
The general principles of expense recognition include the matching principle. Expenses are matched either to ___ or to the time period in which the expenditure occurs (period costs) or to the time period of expected benefits of the expenditures (e.g. depreciation).
revenue
The general principles of expense recognition include the matching principle. Expenses are matched either to revenue or ___ (period costs) or to the time period of expected benefits of the expenditures (e.g. depreciation).
to the time period in which the expenditure occurs
The general principles of expense recognition include the matching principle. Expenses are matched either to revenue or to the time period in which the expenditure occurs (___) or to the time period of expected benefits of the expenditures (e.g. depreciation).
period costs
The general principles of expense recognition include the matching principle. Expenses are matched either to revenue or to the time period in which the expenditure occurs (period costs) or ___ (e.g. depreciation).
to the time period of expected benefits of the expenditures
The general principles of expense recognition include the matching principle. Expenses are matched either to revenue or to the time period in which the expenditure occurs (period costs) or to the time period of expected benefits of the expenditures (e.g. ___).
depreciation
In ___, choice of method (i.e., depreciation method and inventory cost method), as well as estimates (i.e., uncollectible accounts, warranty expenses, assets’ useful life, and salvage value) affect a company’s reported income.
expense recognition
In expense recognition, ___ (i.e., depreciation method and inventory cost method), as well as estimates (i.e., uncollectible accounts, warranty expenses, assets’ useful life, and salvage value) affect a company’s reported income.
choice of method
In expense recognition, choice of method (i.e., ___), as well as estimates (i.e., uncollectible accounts, warranty expenses, assets’ useful life, and salvage value) affect a company’s reported income.
depreciation method and inventory cost method
In expense recognition, choice of method (i.e., depreciation method and inventory cost method), as well as ___ (i.e., uncollectible accounts, warranty expenses, assets’ useful life, and salvage value) affect a company’s reported income.
estimates
In expense recognition, choice of method (i.e., depreciation method and inventory cost method), as well as estimates (i.e., ___) affect a company’s reported income.
uncollectible accounts, warranty expenses, assets’ useful life, and salvage value
In expense recognition, choice of method (i.e., depreciation method and inventory cost method), as well as estimates (i.e., uncollectible accounts, warranty expenses, assets’ useful life, and salvage value) affect a company’s ___.
reported income
To assess a company’s ___, it is helpful to separate those prior years’ items of income and expense that are likely to continue in the future from those items that are less likely to continue.
future earnings
To assess a company’s future earnings, it is helpful to separate ___ that are likely to continue in the future from those items that are less likely to continue.
those prior years’ items of income and expense
Some items from prior years clearly are not expected to continue in future periods and are ___. Two such items are (1) discontinued operations and (2) extraordinary items. Both of these items are required to be reported separately from continuing operations.
separately disclosed on a company’s income statement
Some items from prior years clearly are not expected to continue in future periods and are separately disclosed on a company’s income statement. Two such items are (1) ___ and (2) extraordinary items. Both of these items are required to be reported separately from continuing operations.
discontinued operations
Some items from prior years clearly are not expected to continue in future periods and are separately disclosed on a company’s income statement. Two such items are (1) discontinued operations and (2) ___. Both of these items are required to be reported separately from continuing operations.
extraordinary items
Some items from prior years clearly are not expected to continue in future periods and are separately disclosed on a company’s income statement. Two such items are (1) discontinued operations and (2) extraordinary items. Both of these items are required to be reported separately from ___.
continuing operations
For other items on a company’s income statement, such as ___ and accounting changes, the likelihood of their continuing in the future is somewhat less clear and requires the analyst to make some judgments.
unusual items
For other items on a company’s income statement, such as unusual items and ___, the likelihood of their continuing in the future is somewhat less clear and requires the analyst to make some judgments.
accounting changes
___ items are reported separately from operating items. For example, if a nonfinancial service company invests in equity or debt securities issued by another company, any interest, dividends, or profits from sales of these securities will be shown as nonoperating income.
Nonoperating
Nonoperating items are reported separately from operating items. For example, if a nonfinancial service company invests in equity or debt securities issued by another company, any interest, dividends, or profits from sales of these securities will be shown as ___.
nonoperating income
___ is the amount of income available to common shareholders divided by the weighted average number of common shares outstanding over a period. The amount of income available to common shareholders is the amount of net income remaining after preferred dividends (if any) have been paid.
Basic EPS
Basic EPS is ___ divided by the weighted average number of common shares outstanding over a period. The amount of income available to common shareholders is the amount of net income remaining after preferred dividends (if any) have been paid.
the amount of income available to common shareholders
Basic EPS is the amount of income available to common shareholders divided by ___. The amount of income available to common shareholders is the amount of net income remaining after preferred dividends (if any) have been paid.
the weighted average number of common shares outstanding over a period
Basic EPS is the amount of income available to common shareholders divided by the weighted average number of common shares outstanding over a period. ___ is the amount of net income remaining after preferred dividends (if any) have been paid.
The amount of income available to common shareholders
Basic EPS is the amount of income available to common shareholders divided by the weighted average number of common shares outstanding over a period. The amount of income available to common shareholders is ___.
the amount of net income remaining after preferred dividends (if any) have been paid
If a company has ___ (i.e., one with no potentially dilutive securities), then its basic EPS is equal to its diluted EPS. If, however, a company has dilutive securities, its diluted EPS is lower than its basic EPS.
a simple capital structure
If a company has a simple capital structure (i.e., ___), then its basic EPS is equal to its diluted EPS. If, however, a company has dilutive securities, its diluted EPS is lower than its basic EPS.
one with no potentially dilutive securities
If a company has a simple capital structure (i.e., one with no potentially dilutive securities), then its ___ is equal to its diluted EPS. If, however, a company has dilutive securities, its diluted EPS is lower than its basic EPS.
basic EPS
If a company has a simple capital structure (i.e., one with no potentially dilutive securities), then its basic EPS is equal to its ___. If, however, a company has dilutive securities, its diluted EPS is lower than its basic EPS.
diluted EPS
If a company has a simple capital structure (i.e., one with no potentially dilutive securities), then its basic EPS is equal to its diluted EPS. If, however, a company has ___, its diluted EPS is lower than its basic EPS.
dilutive securities
If a company has a simple capital structure (i.e., one with no potentially dilutive securities), then its basic EPS is equal to its diluted EPS. If, however, a company has dilutive securities, its ___ is lower than its basic EPS.
diluted EPS
If a company has a simple capital structure (i.e., one with no potentially dilutive securities), then its basic EPS is equal to its diluted EPS. If, however, a company has dilutive securities, its diluted EPS is lower than its ___.
basic EPS
___ is calculated using the if-converted method for convertible securities and the treasury stock method for options.
Diluted EPS
Diluted EPS is calculated using ___ for convertible securities and the treasury stock method for options.
the if-converted method
Diluted EPS is calculated using the if-converted method for ___ and the treasury stock method for options.
convertible securities
Diluted EPS is calculated using the if-converted method for convertible securities and ___ for options.
the treasury stock method
Diluted EPS is calculated using the if-converted method for convertible securities and the treasury stock method for ___.
options
___ of the income statement involves stating each line item on the income statement as a percentage of sales. Common-size statements facilitate comparison across time periods and across companies of different sizes.
Common-size analysis
Common-size analysis of ___ involves stating each line item on the income statement as a percentage of sales. Common-size statements facilitate comparison across time periods and across companies of different sizes.
the income statement
Common-size analysis of the income statement involves stating each line item on the income statement as ___. Common-size statements facilitate comparison across time periods and across companies of different sizes.
a percentage of sales
Common-size analysis of the income statement involves stating each line item on the income statement as a percentage of sales. Common-size statements facilitate comparison across ___ and across companies of different sizes.
time periods
Common-size analysis of the income statement involves stating each line item on the income statement as a percentage of sales. Common-size statements facilitate comparison across time periods and across ___.
companies of different sizes
Two income-statement-based indicators of ___ are net profit margin and gross profit margin.
profitability
Two income-statement-based indicators of profitability are ___ and gross profit margin.
net profit margin
Two income-statement-based indicators of profitability are net profit margin and ___.
gross profit margin
___ includes both net income and other revenue and expense items that are excluded from the net income calculation.
Comprehensive income
Comprehensive income includes both ___ and other revenue and expense items that are excluded from the net income calculation.
net income
Comprehensive income includes both net income and ___.
other revenue and expense items that are excluded from the net income calculation
