Income Statement Flashcards
The _____ __ ___ _____ _______ is to provide information on the uses of funds in the income process, uses of funds that will never be used to earn income (losses), the sources of funds created by those expenses, and the sources of funds not associated with the earnings process (gains)
purpose of the income statement
The income statement is useful in determining _______, value for _______ purposes, ______ worthiness, and _______ future cash flows
profitability; investment; credit; predicting
An amount expended for items such as capital assets, services, and merchandise received
cost
Costs that will expire in future periods and be charged against revenues from future periods
unexpired costs
Inventory, prepaid insurance, NBV of fixed assets, and unexpired costs of patents are:
unexpired costs
Unexpired costs =
expired costs=
assets
expenses
Revenues and expenses are reported at their ______ amounts
gross
Gains (on the sale of fixed assets) and losses (on the sale of investment assets) are reported at their ______ amounts
net
Presentation order of the income statement and retained earnings statements
IDEA Income from continuing operations Discontinued operations Extraordinary items Accounting principle change
Income from continuing operations reports both _______ and ________ activities
operating; non-operating
Income from continuing operations includes _____ income and income ____ ___ ______
gross; net of tax
Multiple step income statements report operating revs and exps ______ from non-operating revs and exps and other gains and losses
separately
Benefit of multiple step income statements:
enhanced user information
Purchase price and freight in included in:
inventory cost
Freight out, salaries and commissions, advertising included in:
selling expense
Officer’s salaries, accounting and legal, insurance included in:
general & administrative
auxiliary activities, interest expense included in:
non-operating
Single step income statement shows total ______ subtracted from total ______
expenses; revenues
Discontinued operations are reported ____ ___ _____
net of tax
Impairment loss, a gain/loss from actual operations, a gain/loss on disposal are:
discontinued operations
Discontinued operations are included in the period in which they _____
occur
A component of an entity is _______ ______, both _____ and for ______ _____ purposes from the rest of the entity
clearly distinguished; operationally; financial reporting
Criteria for held for sale (5)
a plan to sell available for immediate sale active program to locate buyer sale is probably and expected within one year actively marketed
Under IFRS, before a component can be classified as held for sale individual _____ and _____ of component must be measured
assets; liabilities
Recorded under discontinued operations if entity has been _______ or classified as ____ __ _____
disposed of; held for sale
Conditions that must be present to report in discontinued operations (2)
eliminated from ongoing operations; no significant continuing involvement
Items included in results of discontinued operations (3)
results of operations
gain or loss on disposal
impairment loss
A gain on discontinued operations is recognized for any subsequent increase in fair value minus the costs to sell but ___ __ _____ of the previously recognized cumulative loss
not in excess
Assets within the discontinued operations component are no longer ______ or ______
depreciated; amortized
A component classified as held for sale is measured at the lower of its ____ _____ or ____ _____ less costs to sell
carrying amount; fair value
As part of its convergence with IFRS, GAAP requires the recognition of a liability for the costs associated with an ____ or ______ activity
exit; disposal
A liability is recognized only when (2):
an obligating event has occurred
a present obligation to transfer assets (payment)
Future operating losses expected to be incurred as part of an exit or disposal activity are recognized in the ______ ______
period incurred
Exit or disposal liabilities are measured at _____ ______ and are reported in ______ ______
fair value; discontinued operations
Information on exit or disclosure activities must be disclosed in the _______
notes
Extraordinary items are reported ____ ____ _____
net of tax
An item is deemed extraordinary when it is (3):
material, unusual, and infrequent
Some natural disasters, expropriation by the government, prohibition of a product line, some gains/losses from extinguishment of long-term debt
extraordinary items
Gain/loss from sale or abandonment of property, large write-offs/write-downs, foreign currency transaction/translation, losses from major strike by employees, long-term debt extinguishments that are part of a common management strategy are __ ______ and are presented as a separate component of ________ _______
not extraordinary; continuing operations
Unusual OR infrequent items are _____ _____ and included in ___________ revenues/expenses
not extraordinary; non-operating
Under IFRS a company ______ present any item as extraordinary
cannot
Accounting principle change is reported ____ ___ _____
net of tax
Accounting principle changes are included in the ____ _____ ______
retained earnings statement
Accounting changes classified as (3):
accounting estimate, accounting principle, accounting entity
When a change in accounting estimate occurs prior periods are ____ _______
not restated
Changes in accounting estimates are _______
prospective
If a change in accounting estimate affects several future periods should be ____ __ ___ ______ to the financial statments
disclosed in the notes
Changes in the estimates of uncollectible accounts and inventory do not need disclosed unless they are ______
material
Changes in accounting principle (GAAP to GAAP) require _______ application
retrospective
An accounting principle may be changed only if ______ by GAAP/IFRS or if the alternative principle is preferable and ____ _____ presents the information
required; more fairly
If non-comparative financial statements used, then cumulative effect of a change in accounting principle = Beg. RE in the _____ ___ _____ - what the RE would have been had the change been ______ applied to all prior affect periods
period of change; retroactively
If comparative financial statements used , then cumulative effect = Beg. RE in the _____ ____ _____ - what RE would have been if the new principle had been applied to all prior periods
first period presented
Changes in accounting principle should be recognized by adjusting _____ ______ ______ in the _______ period presented for the cumulative effect of the change
beginning retained earnings; earliest
In disclosing comparative information applying to an accounting principle, IFRS required the presentation of __ balance sheets
3
Exceptions to the retrospective rule with changes in accounting principle (2):
change to LIFO (prospective)
change in depreciation method (prospective)
Changes in accounting entity require a _______ application
retrospective
An example of a change in accounting entity:
consolidated/combined financial statements that are presented in place of statements of individual companies
If ______ financial statements are presented, restatements to reflect information for the new entity are required
comparative
IFRS ____ _____ include the concept of a change in accounting entity
does not
Error corrections (non-GAAP to GAAP) are a ____ _____ adjustment
prior period
If comparative financial statements are presented either _____ the information if the year is presented or ___ _____ _____ _____ of the earliest year presented if the year is not presented
correct; adjust beginning retained earnings
If comparative financial statements are not presented, adjust the ____ _____ of retained earnings (net of tax)
opening balance
______ does not have an impracticality exemption for error corrections
GAAP
