chapter 04 - INTERMEDIATE Intermediate ACCOUNTING...

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4-1Prepared by Coby HarmonUniversity of California, Santa BarbaraIntermediate AccountingIntermediate AccountingPrepared by Coby HarmonUniversity of California, Santa BarbaraWestmont CollegeINTERMEDIATEACCOUNTINGF I F T E E N T H E D I T I O NPrepared byCoby HarmonUniversity of California Santa BarbaraWestmont Collegekiesoweygandtwarfieldteam for success
4-2PREVIEW OF CHAPTERIntermediate Accounting15th EditionKieso   Weygandt   Warfield4
4-3Evaluate past performance.LO 1 Understand the uses and limitations of an income statement.Help assess the risk or uncertainty of achieving future cash flows.Predicting future performance.UsefulnessIncome Statement
4-4LimitationsLO 1 Understand the uses and limitations of an income statement.Companies omit items that cannot be measured reliably.Income is affected by the accounting methods employed.Income measurement involves judgment.Income Statement
4-5Companies have incentives to manage incometo meet or beat Wall Street expectations, so thatmarket price of stock increases andvalue of stock options increase. LO 1 Understand the uses and limitations of an income statement.Quality of earningsis reduced if earnings management results in information that is less useful for predicting future earnings and cash flows.Quality of EarningsIncome Statement
4-6Format of the Income StatementLO 2 Describe the content and format of the income statement.Revenues– Inflows or other enhancements of assets or settlements of its liabilities that constitute the entity’s ongoing major or central operations.SalesFee Interest Examples of Revenue AccountsElements of the Income StatementDividend Rent
4-7Format of the Income StatementExpenses– Outflows or other using-up of assets or incurrences of liabilities that constitute the entity’s ongoing major or central operations.Examples of Expense AccountsElements of the Income StatementCost of goods soldDepreciation InterestRent Salaries and wagesTaxesLO 2 Describe the content and format of the income statement.
4-8Format of the Income StatementGains and lossescan result fromsale of investments or plant assets, settlement of liabilities, write-offs of assets.Elements of the Income StatementGains– Increases in equity (net assets) from peripheral or incidental transactions.Losses- Decreases in equity (net assets) from peripheral or incidental transactions.LO 2 Describe the content and format of the income statement.
4-9Format referred to as multiple-step income statement.Separates operating transactions from nonoperating transactions.Matches costs and expenses with related revenues.Highlights certain components of income that analysts use assessing financial performance.

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