Class 04. Flashcards
closing entry + income statement
how do you account for RE?
- RE (end) = RE (beg) + (R - E - D)
- RE (end) = RE (beg) + NI - D
what is closing an account?
bringing revenue, expense, and dividend balances to 0
why is the income statement important?
provides risk assessment of future CF + predict future performances
what are the elements of the IS?
- revenue = inflows (related to central operations)
- expense = outflows (related to central operations)
- gain = increase in equity (unrelated to central operations)
- losses = decrease in equity (unrelated to central operations)
what is the multistep format?
- operating section
- non-operating section
- income tax
- = income from continued operations
- discontinued operations (minus)
- non-controlling interest (minority interest)
- net income
- earnings per share
what lines are EPS created for?
- continued
- discontinued
- non-controlling
- net income
what is above the IS income tax line?
operating + non-op
what is below the IS income tax line?
discontinued ops
what is the EPS formula?
(NI - Pref Div)/(Weighted avg. shares outstanding)
how do we get the shares for common shareholders?
by reducing preferred dividends
how do you weight the beginning + ending shares?
you add them then divide by 2
what is the PE formula?
price per share/EPS
lower P/E ratio is better since you’re paying less for every earned doll
what are contra sales account on the IS?
sales returns + accounts & sales discounts
what are non-operating lines on the IS?
dividend revenue + interest expense (unless you’re in investment)
what happens if a line is understated?
adjust the RE amount directly, so it doesn’t impact the IS
