Test 2 Flashcards
Income Statement
Reports a company’s profit during a particular reporting period
Other Comprehensive Income
Includes a few types of gains and losses excluded from the Income Statement
Statement of Cash Flows
Shows how cash actually changed, what cash you received and what cash you payed out
Sections of an Income Statement
- Income from Continuing Operations
- Income from Discontinued Operations
- Earnings Per Share
Revenues
Inflows of resources resulting from providing goods or services to customers - *Not just Cash
Expenses
Outflows of resources incurred while generating revenue
Gains and Losses
Increase or Decrease in equity of a company due to events that are not revenue
Example of Gain or Loss
Selling a piece of equipment or property for a price more or less than the recorded amount
Single Step Income Statement - Continuing Operations
First - List all revenues and gains
Second - List expenses and losses
Third - Income before Taxes (Net First and Second)
Fourth - Income Tax Expense
Fifth - Net Income (Net Third and Fourth)
Multi Step Income Statement - Continuing Operations
First - Gross Profit (Sales Revenue - Cost of Goods Sold)
Second - Operating Income (Sum of Operating Expenses)
Third - Income before Taxes (Sum of Second and Other Income/Expenses)
Fourth - Net Income (Third minus Income Tax Expense)
When are Discontinued Operations reported
- A component of an entity is sold or held for sale
- Discontinuation represents a strategic shift or has a major effect on companies operations
How do discontinued operations effect the income statement?
Income from Continuing operations
+/- Gain/Loss from operations of discontinued component (including gain/loss on sale)
+/- Income Tax Benefit/Expense
= Net Income
Gain/Loss on Discontinued Operations
Gain/Loss from operations of discontinued component (including gain/loss on sale)
+/-
Income Tax
Impairment Loss
Book Value less the Face Value
Three Categories of Accounting Changes
- Accounting Principle
- Estimate
- Reporting Entity
Change in Accounting Principle
When a company changes from one accounting method to another (Example: change in inventory costing method)
Change in Accounting Estimate
Due to modification of estimate as new information comes to light (Example: The useful life and residual value of a depreciable asset)
Correction of Accounting Errors - Same Year
Incorrect journal entry is reversed and the appropriate entry is recorded
Correction of Accounting Errors - Subsequent Years
If Material, require a record of prior period adjustment
Steps for Prior Period Adjustment
- Record a journal entry that adjusts any balance sheet accounts to their appropriate levels
- Record a journal entry increasing or decreasing retained earnings based on error
- Add a disclosure note detailing impact of error
Earnings Per Share
Ratio that indicates the amount of income earned by a company expressed on a per share basis
Basic EPS vs. Diluted EPS
Diluted is a smaller number than Basic
Comprehensive Income
Net Income plus Other Comprehensive Income
IFRS Classification of Cash Flows
Interest/Dividends Paid – Operating or Financing Activity
Interest/Dividends Received – Operating or Investing Activity
Five Steps to Recognizing Revenue
- Identify the Contract
- Identify the Performance Obligations
- Determine the Transaction Price
- Allocate the Transaction Price
- Recognize Revenue when (or as) each Performance Obligation is Satisfied
