pptchapter4 - Learning Objectives Statement of Income and...

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Slide 4-1 UCSB, ANDERSON Statement of Income and Retained Earnings Chapter Slide 4-2 UCSB, ANDERSON 1. 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 Objectives Slide 4-3 UCSB, ANDERSON Income Statement Basics z What is an income statement? Tells what happened; For a STATED PERIOD; Another way to think of it is “retained earnings for this period” z Transaction based. Something has to actually HAPPEN first Can only purchase goodwill. But do you think that Maybe GM, Xerox, Palm, etc…names have value? z Important Fact: Inherently relies upon estimates. Example: Valuation of receivables and inventories; Goodwill valuation Completeness of reported impairments z Quality of earnings Is Management being conservative? Aggressive? Fraudulent? Slippery? Slide 4-4 UCSB, ANDERSON Elements of the Income Statement NOTE: 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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Slide 4-5 UCSB, ANDERSON Income Statement Formats Single-Step Concise and simple Captions for (1) revenues (2) expenses Less detail, consequently less informative Multiple-Step More complex, more subtotals Captions to segregate operating activities from non- operating activities More detail, consequently more informative. Separates operating from non-operating Matches costs to revenue generating activities Slide 4-6 UCSB, ANDERSON Examples of Single-Step & Multiple-Step KWIC Single step.htm KWIC multiple step.htm Slide 4-7 UCSB, ANDERSON In an attempt to provide financial statement users with the ability to better determine the long-range earning power of an enterprise, certain professional pronouncements require that the following irregular items be highlighted in the income statement. z Unusual gains and losses. NOT net of tax z Extraordinary items. Net of tax z Discontinued Operations. Net of tax z CHANGES IN ACCOUNTING PRINCIPLE ARE TREATED WITH RETROACTIVE RESTATEMENT OF PRIOR FINANCIAL STATEMENTS. ALL BUT UNUSUAL GAINS AND LOSSES ARE PRESENTED NET OF TAX. IRREGULAR ITEMS Slide 4-8 UCSB, ANDERSON Unusual Gains & Losses Items that are: z EITHER Unusual or Infrequent, but not both (which is an extraordinary item); z Material z Non-Operating Presentation: z Separate line-item on income statement z NOT net of tax z Not necessarily “special”- can be lumped with other non- operating items such as interest expense.
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pptchapter4 - Learning Objectives Statement of Income and...

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