Income Statement Flashcards
List and define the components of the Income Statement. Identify the difference between economic income and accounting income. Prepare an Income Statement.
where to include adjustments to the prior period?
Prior-period adjustments are shown on the Statement of Retained Earnings and are the correction of accounting errors affecting income of prior years.
Tell the difference between accounting income and economic income?
Accounting Income: Revenues less expenses plus gains less losses.
Economic Income: The change in the net worth (the fair value of net assets) of a business enterprise during an accounting period.
How to calculate the economic income?
beg. FV of net asset + net income + owner’s investment - dividends - stock repurchase = End FV of net asset
How to handle changes in accounting principle?
Make a retrospective adjustment to the financial statement. Under the retrospective approach, the company recast the prior year’s income number under the newly adopted method.They are included in the retained earnings. Statement.
How to handle changes in estimate?
Companies do not handle changes in estimate retrospectively. Write adjusting entries to the related accounts.
How to handle correction of errors?
Companies need to make prior period adjustment to correct errors. They make an adjustment to the beginning balance of retained earnings.
Where to put comprehensive income statements?
U.S. GAAP requires that for-profit entities report comprehensive income and its components for a period in one of two statements:
As a separate “Statement of Comprehensive Income” or
Combined with the Income Statement to provide a “Statement of Net Income and Comprehensive Income”
