Income Statement Flashcards
Understand what is on the income statement and how to compute Net Income as well as comprehensive income
What is Total Retained Earnings?
The retained earnings are calculated by adding net income to (or subtracting net losses from) the previous term’s retained earnings and then subtracting any net dividend(s) paid to the shareholders.
Calculation for Net Income
Total Revenues minus Total Expenses.
Many different textbooks break the expenses down into subcategories like cost of goods sold, operating expenses, interest, and taxes, but it doesn’t matter. All revenues and all expenses are used in this formula.
What is considered an expense on the income statement?
Expenses are outlays of resources for goods or services. These costs include wages, depreciation, and interest expense among others. They are reported on several sections of the income statement. Cost of goods sold expenses are reported in the gross profit reporting section while the operating expenses are reported in the operations section. Other expenses are reported further down the statement in the other gains and losses section.
What is a multi step income statement?
A multi-step statement splits the business activities into operating and non-operating categories. The operating section includes sales, cost of goods sold, and all selling and admin expenses. The non-operating section includes other income or expenses like interest or insurance proceeds.
ON-TIDe-N-OC
O - Operating Income
N - Non Operating Income (Other Income and expense)
T - Provision for Income Tax
I - Income from Continuing Operations
De - Discontinued component unit (Gain or Loss net of tax)
N - Net Income
O - Other Comprehensive Income - net of tax (OCI) (DENT)
C - Comprehensive Income
Gross Profit
Sales less COGS
Calculation for Operating Income
Gross Profit less Sell,General, and Administration expenses (SGA) and Depreciation Expense (also impairment loss for public companies)
S, G and A
Selling, General and Administration Expenses
Other Comprehensive Income
DENT
D - Derivative cash flow hedge gain/loss
E - Excess adjustment of Pension PBO and FV of Plan assets at year end
N - Net Unrealized holding gains (AFS) arising during period
T - Translation adjustment of Foreign Currency
What is DENT?
Other Comprehensive Income:
D - Derivative cash flow hedge gain/loss
E - Excess adjustment of Pension PBO and FV of Plan assets at year end
N - Net Unrealized holding gains (AFS) arising during period
T - Translation adjustment of Foreign Currency
Calculation for Comprehensive Income
Net Income +/- OCI (DENT)
Calculation for Earnings per share
=Income from continuing operations +/- Income from discontinued operations
Examples of non operating income and expense
Interest/Dividend Income Interest expense/unusual and or infrequent items Loss due to earthquake Gain on sale of equipment/Investments Impairment Loss - non public
Calculation for Provision for Income Tax
=Current + Deferred
What are Earnings from long-term contracts considered?
They are revenues and would be included in calculation of Net Income along with any associated costs and expenses.
