FAR1 M2 Income Statement & Balance Sheet

Question 1

What is the purpose of an income statement?

Answer 1

To provide information about the uses of funds in the income process (expenses), the uses of funds that will never be used to earn income (losses), the sources of funds created by expenses (revenues), and the sources of funds not associated with the earnings process (gains).

Question 2

Uses of the income statement

Answer 2

To determine profitability, value for investment purposes, and creditworthiness.

Question 3

What is a cost?

Answer 3

The amount of money paid for something (capital asset, services, goods). Expenses are immediately recognized in the period incurred and assets are capitalized.

Question 4

What is an unexpired cost?

Answer 4

Prepaid/Asset cost that will expire in future periods and be matched against revenues (BS->IS) in future periods.