Week 2 The Income Statement Flashcards
___ is a financial statement that measures the performance of the firm over a period of time.
The income statement
The basic equation of the ___ is Revenues – Expenses = Net Profit.
income statement
The basic equation of the income statement is ___ = Net Profit.
Revenues – Expenses
The basic equation of the income statement is Revenues – Expenses = ___.
Net Profit
The income statement is also called ___.
the statement of profits and losses (the P&L)
Depending on the country, net profit is referred to as ___ or ___.
net earnings / net income
___ is an important figure because it reveals whether the firm is making money or not.
Net profit
Net profit is an important figure because it reveals ___.
whether the firm is making money or not
___ are increases in owners’ equity as a result of operations conducted by the firm with the intention of generating profits.
Revenues
Revenues are ___.
increases in owners’ equity as a result of operations conducted by the firm with the intention of generating profits
___ are decreases in owners’ equity as a result of operations conducted by the firm with the intention of generating profits.
Expenses
Expenses are ___.
decreases in owners’ equity as a result of operations conducted by the firm with the intention of generating profits
Because ___ equals net assets (assets – liabilities), we can also say that revenues increase net assets and expenses decrease net assets as a result of operations.
owners’ equity
Because owners’ equity equals ___, we can also say that revenues increase net assets and expenses decrease net assets as a result of operations.
net assets (assets – liabilities)
Because owners’ equity equals net assets (assets – liabilities), we can also say that revenues ___ and expenses ___ as a result of operations.
increase net assets / decrease net assets
It is crucial to realize that revenues are not ___ and expenses are not ___.
cash inflows / cash outflows
For instance, the revenue from credit sales is recognized before the cash is received and many expenses are recognized before payments are made, such as utilities, which are first consumed and recognized as a utilities expense and later paid for.
The top line of the income statement is always ___
revenues: the inflow of net assets as a result of selling goods or performing services
The second line of the income statement is ___
the cost of the goods sold (cost of sales) or of the services performed.
The difference between revenue and cost of sales (or services) is called ___.
gross profit (aka net profit)
___ is called gross profit.
The difference between revenue and cost of sales
(or services)
The difference between revenue and all the operating expenses is called ___.
operating profit
___ is called operating profit.
The difference between revenue and all the operating expenses
After operating profit, firms report financing costs (e.g., interest expense) and income from financial investments; this is called ___.
profit before tax
After operating profit, firms report ___; this is called profit before tax.
financing costs (e.g., interest expense) and income from financial investments
Finally, the difference between all the revenues and expenses is the ___ from continuing operations
net profit
Finally, ___ is the net profit from continuing operations
the difference between all the revenues and expenses
A firm recognizes revenues when the transaction fulfills the following conditions:
a) ___
b) The firm has received cash or some other asset
The firm has done all that it has promised to do for the customer
A firm recognizes revenues when the transaction fulfills the following conditions:
a) The firm has done all that it has promised to do for the customer
b) ___
The firm has received cash or some other asset
A firm recognizes an expense when either of the following conditions holds:
a) ___
b) The consumption of an asset (or the incurrence of a liability) results from the passage of time (e.g., depreciation expense, interest expense).
The consumption of an asset results from a transaction that leads to the recognition of revenue
A firm recognizes an expense when either of the following conditions holds:
a) The consumption of an asset results from a transaction that leads to the recognition of revenue
b) ___
The consumption of an asset (or the incurrence of a liability) results from the passage of time (e.g., depreciation expense, interest expense).
The net effect unrealized gains and losses that arise from changes in the value of assets or liabilities, and not from transactions is called ___.
other comprehensive income (OCI)
___ is called other comprehensive income (OCI).
The net effect unrealized gains and losses that arise from changes in the value of assets or liabilities, and not from transactions
At the bottom of the income statement, firms report ___.
earnings per share (EPS)
___ is the net profit (with some minor adjustments) divided by the weighted average number of shares outstanding during the period.
Earnings per share (EPS)
Earnings per share (EPS) is ___.
the net profit (with some minor adjustments) divided by the weighted average number of shares outstanding during the period
The figure of ___ is closely followed by financial analysts, who try to forecast it using all the available information.
earnings per share
