Slide 4-1UCSB, ANDERSONStatement of Income and Retained EarningsChapterSlide 4-2UCSB, ANDERSON1.Identify the uses and limitations of an income statement.2.Prepare a single-step income statement.3.Prepare a multiple-step income statement.4.Explain how irregular items are reported.5.Explain intraperiod tax allocation.6.Explain where earnings per share information is reported.7.Prepare a statement of retained earnings.8.Explain how other comprehensive income is reported.Learning ObjectivesSlide 4-3UCSB, ANDERSONIncome Statement BasicszWhat is an income statement?–Tells what happened;–For a STATED PERIOD;–Another way to think of it is “retained earnings for this period”zTransaction based.–Something has to actually HAPPEN first–Can only purchase goodwill. But do you think that Maybe GM, Xerox, Palm, etc…names have value?zImportant Fact: Inherently relies upon estimates. Example:–Valuation of receivables and inventories;–Goodwill valuation–Completeness of reported impairmentszQuality of earnings–Is Management being conservative? Aggressive? Fraudulent? Slippery?Slide 4-4UCSB, ANDERSONElements of the Income StatementNOTE:See textbook for formal definition, which is within the scope of exam possibilities!Revenue:Inflow from the entities principal operations.Expenses:Costs of earning the revenue.Gains & Losses:Other income activities which are not from principal operations and which are presented “Net” on the income statement.
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