Structure of an Income Statement Flashcards
How is gross profit shown on an income statement?
Gross profit is found by taking sales revenue(less any discounts and returns) and then subtracting cost of goods sold.
On an income statement, what are the two general classifications of operating expenses?
Operating expenses are usually divided between general and administrative expenses and selling expenses.
On an income statement, what items normally fall under the other revenues and expenses category?
other revenues and expenses category of an income statement will usually show any items that are on tagentially related to the primary operations of a business.
ex. Gains, losses, interest revenue, interest expense
What two accounts are always reported at the very bottom of an income statement, net of their own tax effect?
Discontinued operations
Extraordinary gains and losses
What requirements must be met in order to qualify a gain or lass as extraordinary on the income statement?
unusual in nature
infrequent in occurrence
A debt is paid off early, and a gain or loss is recognized on the payment. How is that reported?
ordinary gain or loss
What are some events that are not reported as extraordinary?
gains and losses created by changes in the value of a foreign currency.
write-offs of assets not caused by a specific external event
gains and losses resulting from a strike
An entity must show both its net income for the period and its comprehensive income. How is a entity’s net income adjusted to its comprehensive income?
several adjustments can be made to an entity’s net income to arrive at its comprehensive income. These reflect changes during the year in accounts where the impact is reported in other comprehensive income within stockholders’ equity, rather than within net income
common examples include:
- Translations adjustments.
- Unrealized gains or losses on available-for-sale securities.
- A possible portion of the balance recognized in connection with changes in the funded status of a pension plan. The initial recording of prior service cost and net gains/losses on defined benefit pension plans is made in other comprehensive income.
What is the purpose of reporting comprehensive income?
to summarize all changes in equity from non-owner sources
An entity reports its net income as $300,000. However, during the year, the entity has a translation adjustment(because of the ownership of a foreign subsidiary) with a credit balance of $30,000 at the beginning of the year, and a credit balance of $39,000 at the end of the year.
What is the entity’s comprehensive net income?
Because the translation adjustment is reported in stockholders’ equity and not in net income, the change in the balance during the period will be used to compute comprehensive income. Because the credit balance increased by $9,000 during the year, that is the equivalent of a gain. This gain turns the $300,000 net income into comprehensive income of $309,000.
