Chapter 9: Income Statement & Statement of Cash Flows

Question 1

revenues

Answer 1

Inflows of cash or increases in other assets, or settlement of liabilities, during a period from delivering or producing goods, rendering services, or performing other activities that constitute the entity’s major operations.

Question 2

realization

Answer 2

A revenue recognition criterion that relates to the receipt of cash or a claim to cash in exchange for the product or service.

Question 3

earned

Answer 3

A revenue recognition criterion that relates to completion of the revenue-generating activity.

Question 4

sales

Answer 4

Revenues resulting from the sale of product.

Question 5

sales returns and allowances

Answer 5

Reductions in sales from product returns or adjustments in selling price.

Question 6

shipping terms

Answer 6

The description of the point at which title passes from seller to buyer.

Question 7

FOB destination

Answer 7

The shipping term that means that title passes from seller to buyer when the merchandise arrives at its destination.

Question 8

FOB shipping point

Answer 8

The shipping term that means that title passes from seller to buyer when the merchandise leaves the seller’s premises.

Question 9

freight prepaid

Answer 9

A freight payment alternative meaning that freight is paid by the shipper.

Question 10

freight collect

Answer 10

A freight payment alternative meaning that freight is payable when the merchandise arrives at its destination.

Question 11

percentage-of-completion method

Answer 11

A method of recognizing revenue based on the completion percentage of a long-term construction project.

Question 12

gains

Answer 12

Increases in net assets from incidental transactions and other events affecting an entity during a period except those that result from revenues or investments by owners.

Question 13

expenses

Answer 13

Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s major operations.

Question 14

matching principle

Answer 14

The concept that expenses incurred in generating revenues should be “matched” against revenues earned during some period of time, usually one year, in determining net income or loss for the period.

Question 15

losses

Answer 15

Decreases in net assets from incidental transactions and other events affecting an entity during a period except those that result from expenses or distributions to owners.

Question 16

cost of goods sold

Answer 16

Cost of merchandise sold during the period; an expense deducted from net sales to arrive at gross profit.

Question 17

inventory cost flow assumption

Answer 17

The application of FIFO, LIFO, weighted-average, or specific identification procedures to determine the cost of goods sold.

Question 18

inventory shrinkage

Answer 18

Inventory losses resulting from theft, deterioration, and record-keeping errors.

Question 19

cost of goods sold model

Answer 19

The formula for calculating cost of goods sold by adding beginning inventory and purchases and subtracting ending inventory.

Question 20

purchase returns and allowances

Answer 20

Reductions in purchases from products returned to the supplier or adjustments in the purchase cost.

Question 21

gross profit/margin

Answer 21

The difference between net sales and cost of goods sold

Question 22

gross profit/margin ratio

Answer 22

The ratio of gross profit to net sales;
gross profit / net sales

Question 23

sales mix

Answer 23

The proportion of total sales represented by various products or categories of products.

Question 24

selling price formula

Answer 24

= cost of product / (1-desired gross profit ration)

Question 25

operating expenses/income from operations

Answer 25

Expenses, other than cost of goods sold, incurred in the day-to-day activities of the entity;
= gross profit - operating expenses

Question 26

other income and expenses

Answer 26

An income statement category that includes interest expense, interest income, and gain or loss items not related to the principal operating activities of the entity.

Question 27

income before income taxes

Answer 27

An income statement subtotal on which income tax expense is based.

Question 28

net income/net loss (bottom line)

Answer 28

The excess of revenues and gains over expenses and losses for a fiscal period.

Question 29

basic earnings per share

Answer 29

Net income available to common stockholders divided by the weighted average number of shares of common stock outstanding during the period.

Question 30

diluted earnings per share

Answer 30

An amount less than basic earnings per share that assumes that additional shares of common stock have been issued pursuant to convertible debt, convertible preferred stock, and/or stock option plans.

Question 31

single-step format

Answer 31

An income statement format that excludes subtotals such as gross profit and operating income.

Question 32

multiple-step format

Answer 32

An income statement format that includes subtotals for gross profit, operating income, and income before taxes.

Question 33

income from continuing operations

Answer 33

An income statement subtotal that is presented before income or loss from discontinued operations.

Question 34

extraordinary item

Answer 34

A gain or loss from a transaction that both was unusual in nature and occurred infrequently; prior to 2015, it was reported separately in the income statement and shown net of taxes. (Some companies may continue to report the comparative effects of extraordinary items that occurred in prior years.)

Question 35

net income attributable to (parent company name)

Answer 35

Net income, less “net income attributable to noncontrolling interest” in the consolidated income statement: for example, “Net income attributable to Racers, Inc.” Sometimes referred to as net income attributable to controlling interest.

Question 36

net income attributable to noncontrolling interest

Answer 36

An income statement item representing the noncontrolling (minority) stockholders’ share of the earnings of a subsidiary that have been included in the consolidated income statement.

Question 37

statement of cash flows

Answer 37

The financial statement that explains why cash changed during a fiscal period. Cash flows from operating, investing, and financing activities are shown in the statement.

Question 38

cash flow operating expenses - presentation methods

Answer 38

direct - listing each major class of cash receipts transactions and each disbursement transactions for each of the three activity areas
indirect - explains cash flow by explaining the change in each noncash operating account in the balance sheet (shows net income first)