Chapter 4 Flashcards
The Income Statement, Comprehensive Income, and the Statement of Cash Flows
Income Statement
Statement of operations or statement of earnings that is used to summarize the profit-generating activities that occurred during a particular reporting period
Comprehensive Income
Change in shareholders’ equity for the period from nonowner sources; equal to net income plus other comprehensive income; traditional net income plus other nonowner changes in equity
Statement of Cash Flows
Statement summarizing the transactions that caused cash to change during the period
Revenues
Inflows of assets or settlements of liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations
Expenses
Outflows or other using up of assets or incurrences of liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing operations
Gains
Increases in equity from peripheral, or incidental, transactions of an entity
Losses
Decreases in equity from peripheral, or incidental, transactions of the entity
Income from Continuing Operations
Revenues, expenses (including income taxes), gains, and losses, excluding those related to discontinued operations and extraordinary items
Incl: operating income, nonoperating income, income tax expense
Operating Income
Includes revenues, expenses, gains, and losses directly related to the principal revenue-generating activities of the company
Nonoperating Income
Includes revenues, expenses, gains, and losses related to peripheral or incidental activities of the company
Earnings Quality
Refers to the ability of reported earnings (income) to predict a company’s future earnings
Restructuring Costs
costs associated with plans by management to materially change either the scope or manner in which its company’s operations are conducted
Non-GAAP Earnings
Actual (GAAP) earnings reduced by any expenses the reporting company feels are unusual and should be excluded
Discontinued Operations
The discontinuance of a component of an entity whose operations and cash flows can be clearly distinguished from the rest of the entity
Prior Period Adjustment
Addition to or reduction in the beginning retained earnings balance in a statement of shareholders’ equity due to a correction of an error in a prior period
Earnings Per Share (EPS)
The amount of income earned by a company expressed on a per share basis
Basic EPS
Computed by dividing income available to common shareholders (net income less any preferred stock dividends) by the weighted-average number of common shares outstanding for the period
Diluted EPS
Incorporates the dilutive (reducing) effect of all potential common shares in the calculation of EPS
Comprehensive Income
Change in shareholders’ equity for the period from nonowner sources; equal to net income plus other comprehensive income. Traditional net income plus other nonowner changes in equity
Other Comprehensive Income
Changes in shareholders’ equity other than transactions with owners and other than items that affect net income
Retained Earnings
Amounts earned by the corporation on behalf of its shareholders and not (yet) distributed to them as dividends
Net Income
All revenues and gains minus all expenses and losses reported in the income statement
Accumulated Other Comprehensive Income (AOCI)
A component of shareholders’ equity that reports the accumulated amount of other comprehensive income items in the current and prior periods
Statement of Cash Flows (SCF)
Statement summarizing the transactions that caused cash to change during the period
Operating Activities
Inflows and outflows of cash related to transactions entering into the determination of net income
Direct Method
Cash effect of each operating activity (i.e., income statement item) is reported directly on the statement of cash flows
Indirect Method
The net cash increase or decrease from operating activities is derived indirectly by starting with reported net income and working backwards to convert that amount to a cash basis
Investing Activities
Involve the acquisition and sale of long-term assets used in the business and nonoperating investment assets
Financing Activities
Involve cash inflows and outflows from transactions with creditors (excluding trade creditors) and owners
Asset Turnover Ratio
Measure of a company’s efficiency in using assets to generate revenue; computed as net sales divided by average total assets
Receivables Turnover Ratio
Indicates how quickly a company is able to collect its accounts receivable; computed as net sales divided by average accounts receivable (net)
Average Collection Period
Indication of the number of days the average accounts receivable balance is outstanding
Inventory Turnover Ratio
Measures a company’s efficiency in managing its investment in inventory; computed as cost of goods sold divided by average inventory
Profit Margin on Sales
Net income divided by net sales; measures the amount of net income achieved per sales dollar
Return on Assets (ROA)
A company’s profitability in relation to overall resources, measured as net income divided by average total assets
Return on Equity (ROE)
Amount of profit management can generate from shareholders’ equity, measured as net income divided by average shareholders’ equity
