Income Statement 1

Question 1

Does accounting income take a transactions-based determination of income or a change in net worth?

Answer 1

Accounting income is transaction based.

Question 2

What represent increases in net assets or settlements of liabilities by providing goods and services?

Answer 2

Revenues.

Question 3

What items are not shown on the income statement?

Answer 3

1. Prior period adjustments;
2. Foreign currency translation adjustments;
3. Unrealized gains and losses on available for sale (AFS) securities;
4. Unrecognized pension items;
5. Cumulative effect of changes in accounting principle;
6. Unrealized gains and losses on cash flow hedges.

Question 4

Define “expenses”.

Answer 4

Decreases in net assets or incurrence of liabilities through the provision of goods or services.

Question 5

Define “gains”.

Answer 5

Increases in equity or net assets from peripheral or incidental transactions.

Question 6

How are unusual or infrequent items reported?

Answer 6

They must be separately reported if material as a component of income from continuing operations.

Question 7

Define “losses”.

Answer 7

Decreases in equity or net assets from peripheral or incidental transactions.

Question 8

What is the order of income statement presentation?

Answer 8

1. Income from Continuing Operations;
2. Income from Discontinued Operations (net of tax);
3. Extraordinary Items (net of tax);
4. Net Income.

Question 9

What is economic income?

Answer 9

The change in the net worth of a business enterprise during an accounting period.