MidtrmReview - Chapter 4 Income Statement - Usefulness o...

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Chapter 4 – Income Statement - Usefulness o Shows past performance o Helps predict future performances o Assess risk or uncertainty - Limitations o Companies omit items from the income statement that they cannot measure reliability. o Income numbers are affected by the accounting methods employed o Income measurement involves judgment. - Elements of the income statement o Revenues o Expenses o Gains o Losses - Single Step o Total Revenues Net Sales Dividend Revenues Rental Revenue o Less: Total Expenses COGS Selling Expenses Interest Exp. Income Tax Exp. o Equals: Net Income o Earnings per common share - Multiple Step o Elements Operation Section Sales or Revenue Section COGS Section Selling Expenses Non-Operating Section Other Revenues and Gains Other Expenses and Losses Income Tax Discontinued Operations Extraordinary Items Earnings Per Share o Net Sales Rev = Sales Rev – Sales discounts – Sales Returns and allowances
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o Gross Profit = Sales Rev – COGS o Income From Operations = Gross Profit – Total Expenses - Condensed o All Expenses and Revenues are netted and shown using supporting documents by ticking. - Irregular Items o Discontinued Operations – occurs when a company eliminates the results of operations and cash flows as a component from it ongoing operations AND there is no significant continuing involvement in that
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MidtrmReview - Chapter 4 Income Statement - Usefulness o...

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