Income Statement/Statement of Profit or Loss Flashcards
Single-Step Income Statement
Revenues and gains
- Expenses and losses
=Income before tax
- Provision for income tax
= Income from continuing operations
+/- Discontinued operations (net of tax)
= Net Income
Single-Step Income Statement:
Revenues and Gains
Includes operating and non-operating items:
*Net sales revenues
*Interest income
*Unrealized gains
*Unusual and infrequent gains
Single-Step Income Statement:
Expenses and Losses
Includes operating and non-operating items:
*Cost of Goods Sold
*Selling, general and administrative expenses
*Interest Expense
*Unrealized losses
*Unusual and infrequent losses
**
Multi-Step Income Statement
Net Sales Revenues
- Cost of Goods Sold
= Gross Profit
- Selling Expenses
- General and Admin Expenses
- Depreciation Expenses
= Operating Income
Nonoperating Items
=Income before tax
- Provision for Income Tax
= Income from continuing operations
+/- Discontinued operations (net of tax)
= Net Income
Cost of Goods Sold
Beginning Inventory
+ Purchases
=Goods available for sale
-Ending Inventory
= Cost of Goods Sold
Selling Expenses
*Sales salaries and commissions
*Advertising
*Freight out
General and Administrative Expenses
*Officers Salaries
*Accounting and Legal
*Insurance
Non-operating Items
*Interest income and expenses
*Dividend Income
*Gains and losses on sale of assets or debt extinguishment
*Foreign currency transactional gains and losses
*Unrealized gains and losses
*Unusual and infrequent items
Provision for income tax
- Current
- Deferred
Held for Sale Asset
A component qualifies as held for sale if all the following criteria are met:
*A plan to sell the component has been committed to by those who have the authority to do so.
*The component is in salable condition and available for immediate sale.
*Action to complete the plan for disposal has been initiated, and a buyer is being actively sought.
*The sale is probable and expected to be completed and to qualify for recognition within one year.
*The price at which the component is being marketed is reasonable.
*It is unlikely that significant changes will be made to the plan or that it will be withdrawn.
Recognizing elements of a discontinued operation
Operating income/loss - Recognized in period incurred - (net of tax)
Gain on sale - Recognized in year of disposal - (net of tax) *Sales price - book price
Loss on sale (actual) - Recognized in year of disposal - (net of tax) *Sales price - book price
Impairment loss (anticipated) - Recognized immediately upon “held for sale” classification
Occurs when an asset’s book value exceeds its net realizable value (NRV, ie, fair value less cost of disposal) *NRV - book value
Foreign Currency Transaction
Financial transactions settle in foreign currency are initially recorded in the functional currency using the spot rate as of transaction date.
A foreign currency exchange gain(loss) will result if the spot rate on the settlement date is different than the rate on the transaction date.
Gains/losses Reported as Income from continuing operations
Foreign Currency Translation
When preparing consolidated financial statements for a foreign subsidiary, the parent company translates the subsidiary’s financial statements from the local currency (British pounds) to the parent company’s reporting currency
Gains/losses reported in other comprehensive income
Foreign Currency Transaction Rate
Transaction date = record the receivable/payable using the spot rate on that date
Balance sheet date = revalue the receivable/payable using the balance sheet spot rate
Settlement date = revalue the receivable/payable using the settlement date spot rate
