Income Statement Flashcards
Revenues
represent increases in net assets or settlements of liabilities by providing goods and services. Revenues are related to the company’s primary business operations.
Dr: Cash/AR Cr: Rev/Sales
Dr: Unearned Rev Cr: Rev/Sales
Expenses
represent decreases in net assets or incurred liabilities through the provision of goods or services. Expenses are related to the company’s primary business operations. Expenses provide benefit to the firm. Losses do not.
Dr: Expense Cr: Cash/AP
Dr: Expense Cr: AP/Accrued Liab.
Gains/Losses
Gains represent increases in equity or net assets from peripheral or incidental transactions. (e.g. sale of land)
Losses represent decreases in equity or net assets from peripheral or incidental transactions. Losses do not provide value or benefit to the firm
Multi-Step Income Statement
Multi-Step I/S
ABC Company
FYE December 31
Sales (COGS) Gross Profit (Operating Expenses/Selling/Gen Adm) \+/- other income/expenses \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Income from continuing operations before tax (Income Taxes) Income from continuing operations \+/- Gain or loss from Discontinued operations \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Net Income
EPS
from continued/discontinued/and net income
Economic income
The change in the net worth of a business enterprise during an accounting period.
Single-Step Format
The single-step format involves a presentation of income from continuing operations that is largely based on a single comparison. Total revenues and gains are compared with total expenses and losses in the single-step format.
Multiple Step Format
involves a presentation of income from continuing operations that includes multiple comparisons of revenues, expenses, gains, and losses. In doing so, the reader is provided with the operating margin of the company, which is the excess of operating revenues over operating expenses. In other words, these revenues and expenses are directly tied to the company’s primary business operations. Beyond the operating margin, the incidental or peripheral gains and losses are shown in the presentation of income from continuing operations.
Statement of Comprehensive Income
NI + OCI = CI
Either one or two statement approach
One stmnt - in combination w/ the i/s
Two stmnt - separate stmnt
Other Comprehensive Income
- Unrealized G/L on AFS securities
- Unrealized G/L from pension costs
- Foreign Currency Translation Adjustments
- Unrealized G/L from Certain Derivative Transactions
AFS, Pension, Foreign Currency, Derivative
One Statement Approach - CI
Rev
(Exp)
NI
OCI income items (net of tax)
(any of the 4 possible items)
Total OCI
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Total Comprehensive IncomeTwo Statement Approach - CI
1
Rev
(Exp)
Net income
#2 Net Income OCI Items (net of tax) Total OCI \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Total Comprehensive Income
Comprehensive Income Disclosures
Before tax, Income tax, After-tax amount
effect of these items and the amounts coming in and out
What is going in to CI and what is being reclassified out to NI
Comprehensive Income
The purpose of requiring the reporting of comprehensive income is to report the net change in equity (other than from transactions with owners) in a single amount and to provide a more complete picture of the total earnings of the firm for a period. This reporting contributes to the objective of reporting an “all inclusive” income amount.
DOES NOT INCLUDE:
Retrospective effects of changes in accounting principle;
Prior period adjustments.
Separate Statement Approach
ABX Inc.
Statement of Comprehensive Income
For the Year Ended December 31, 20x7
Net income $24,000
Other comprehensive income, net of tax
Net unrealized holding loss on AFS ($7,000)
Unrealized pension cost adjustment (2,000)
Other comprehensive income (9,000)
Comprehensive income $15,000
Combined Statement Approach
ABX Inc.
Statement of Income and Comprehensive Income
For the Year Ended December 31, 20x7
Income from continuing operations $14,000
Discontinued Operations, net of tax 10,000
Net income $24,000
Other comprehensive income, net of tax
Net unrealized holding loss on AFS ($7,000)
Unrealized pension cost adjustment (2,000)
Other comprehensive income (9,000)
Comprehensive income $15,000
Accumulated Other Comprehensive Income (AOCI)
the amount carried over from the previous period, and then either increased or decreased during the current period. This total is the running total of other comprehensive income items through the balance sheet date. Irrespective of the reporting option chosen for comprehensive income, U.S. GAAP requires that the total of other comprehensive income be separately displayed in the owners’-equity section of the balance sheet in an account with a title such as AOCI. AOCI is an owners’-equity (OE) account.
Reclassification Adjustments of OCI Accounts
A firm recognizes a $5,000 unrealized gain on an AFS investment in year 1 OCI. In year 2, the AFS investment is sold for a $5,000 gain (recognized in net income causing retained earnings to increase by $5,000). At the end of year 2, the $5,000 unrealized gain from year 1 in AOCI is removed by reducing AOCI by $5,000 (the reclassification adjustment). The gain in OCI is “reclassified” as a gain recognized in net income. Without the reclassification adjustment, total OE would count the $5,000 twice. Reclassification adjustments are reported in the footnotes.
Basis I/S Notes
Net Income is closed out to Retained Earnings
OCI is closed out to AOCI each year (which is an OE account)
Retained earnings and AOCI are equity accounts
