Module05 - Module 5 Module 5 Reporting and Reporting and...

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Unformatted text preview: Module 5 Module 5 Reporting and Reporting and Analyzing Operating Analyzing Operating Income Income Roadmap Roadmap Purpose of Income Statement Purpose of Income Statement The need for Classification The need for Classification Revenue Recognition Issues Revenue Recognition Issues Expense Matching Expense Matching Research and development Conundrum Research and development Conundrum Restructuring Charges and Big Bath Restructuring Charges and Big Bath Tax Expense Tax Expense Below the Line Items Below the Line Items Earnings per Share Earnings per Share Transitory Income Items & Core Transitory Income Items & Core Earnings Earnings Estimation of stock prices entails forecasts of Estimation of stock prices entails forecasts of future earnings and cash flows. future earnings and cash flows. Core earnings and cash flows have the greatest Core earnings and cash flows have the greatest persistence or predictive power and are, therefore, persistence or predictive power and are, therefore, most useful for stock price estimation. most useful for stock price estimation. Our goal is to identify Our goal is to identify core core earnings and cash earnings and cash flows of the company. flows of the company. Classification of Income Statement Items Classification of Income Statement Items Recurrent Non-recurring Operating Non-operating Operating and Nonoperating Items in the Income Operating and Nonoperating Items in the Income Statement Statement Home Depots Operating Items Home Depots Operating Items Operating and Nonoperating Operating and Nonoperating Components in the Income Statement Components in the Income Statement Revenue Recognition Revenue Recognition Revenue recognition criteria Revenue recognition criteria 1. 1. realized or realizable realized or realizable , and 2. 2. earned earned Realized or realizable Realized or realizable means that the sellers net assets (assets less liabilities) increase. Earned Earned means that the seller has performed its duties under the terms of the sales agreement. Arguments Arguments Against Against Revenue Recognition Revenue Recognition Rights of return exist Rights of return exist Consignment sales Consignment sales Continuing involvement by seller in product Continuing involvement by seller in product resale resale Contingency sales Contingency sales Pfizers Revenue Recognition Policy Pfizers Revenue Recognition Policy Revenue Recognitionwe record revenue from product sales when the goods are shipped and title passes to the customer. At the time of sale, we also record estimates for a variety of sales deductions, such as sales rebates, discounts and incentives, and product returns. Risks of Revenue Recognition...
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Module05 - Module 5 Module 5 Reporting and Reporting and...

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