F1_Module 2 Income Statement and Balance Sheet Flashcards
What 4 uses of funds does the Income Statement provide for?
REGL (tracking performance for a period of time)
1- The uses of funds in the income process (i.e. expenses).
2- The uses of funds that will never be used to earn income (i.e. losses).
3- The sources of funds created by those expenses (i.e. revenues).
4- Source of funds not associated with the earning process (i.e. gains).
The Income statement is useful for?
The IS is useful in determining: 1- Profitability 2- Value for investment purposes 3- Creditworthiness 4- Predicting information about future cash flows (amounts, timing, and uncertainty) based on past performance.
What are costs and unexpired costs?
Cost is amount actually paid for capital assets, services, and merchandise received. They may be expensed in the period or capitalized into an asset.
Unexpired costs are costs that will expire in future periods and be charged (allocated in a systematic or rational manner or matched) against revenues from future periods.
Please explain the gross and net concept when it comes to Income Statement items with examples.
Revenues and Expenses under normal operating are reported in gross amounts in separate line items. The expenses include costs associated with this period and those allocated from the unexpired costs.
Gains and losses are non-operating items and reported net.
What are the benefits of a multiple-step IS?
The benefits of a multiple-step IS are enhanced user information because the line items provide readily usable information for calculating analytical ratios.
How are items on a multiple-step Income Statement reported by section?
The Multiple-step IS reports operating revenues and expenses (read core business sales and operating expenses, i.e. COGS, SG&A, Depreciation) “separately” from non-operating revenues and expenses (gains, losses and other).
What are some examples of analytical ratios calculated due to the advantage of having readily usable information like subtotals on the Multiple-step Income Statement?
To calculate ratios like Gross Margin [(Sales-COGS)/Sales], Operating Margin [(Sales-Op.Expenses)/Sales], and Overall Profit Margin [(Sales- Op&Non-Op. Expenses-Interest-taxes)/Sales] easily.
Are Non-Operating Income and expenses like Gains and Losses, and interest revenue/expenses, infrequent, unusual, or both (highly irregular).
They are unusual OR infrequent (not both which would go into unusual items along side Gain/Loss from sale of AFS securities (this section is before taxes, there is also a section for discontinues operations that is reported net of tax).
What are the benefits of a Single-step Income Statement?
The benefits of a single-step IS is it’s “simple design” and the types of incomes and expenses do not appear to be more important than others.
Describe the format of a single-step IS?
Revenue and Other Items:
Total Rev & Other Items (Sales revenues net of discounts etc.)
Expenses and Other Items:
Total Exp & Other Items (includes tax expense)
Income from Continuing Operations
Discontinued Operations (net of tax)
Net Income
What are the types of Balance Sheet an entity may present under U.S. GAAP?
Under U.S. GAAP entities may present a “classified” balance sheet that distinguishes current and non-current assets and liabilities.
When appropriate a balance sheet presentation based on liquidity is also permissible.
Describe the layout of a multiple-step Income Statement?
Radon Industries
Income Statement
For the Year Ended December 31, Year 1
(in thousands)
Net Sales (less discounts and returns) Cost of Sales Gross Margin Selling Exp. G&A Exp. Depreciation Exp. Income (Loss) from Operations
Other Revenues & Gains (unusual OR infrequent)
Other Expenses & Losses (unusual OR infrequent)
Income before Unusual Items & Income Tax Unusual & Infrequent. Income Tax Expense Income from Continuing Operations (after tax) Discontinues Operations (net of Tax) Net Income
Describe the layout of a “classified” balance sheet?
Company Name
Balance Sheet
As of December 31, Year 1
Assets. Liabilities & Stockholders ‘equity
CA CL
Investments. LT liabilities
PP&E. Total liabilities.
Intangible Assets. Stockholder’s Equity (residual int.)
Other Assets Capital Stock
Total Assets Preferred stock, $10 par, 8%
cum & non-particip, 10,000
shares authorized, 5,000
shares issues and outstanding.
Common stock, $0.01 par, 600M
shares authorized, 57M shares
issued, 56M shares outstand.
Paid-In capital In excess of Par
Retained Earnings
Accumulated Other
Comprehensive Income
(treasury stock at cost) (1M shrs)
Total stockholders’ equity
Total liabilities & stockholders’ equity
