Pratt_7e_Chapter13

Pratt_7e_Chapter13 - Chapter 13: Income Statement 2 What is...

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2 Chapter 13: Chapter 13: Income Statement Income Statement
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3 What is Income (Profit)? What is Income (Profit)? A measure of a change in value As compared to equity, which measures the level of value (or wealth) It is NOT net cash flow It is a measure of performance It is a link between two balance sheets
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4 The Multiple Step Income Statement The Multiple Step Income Statement Operating Section          Sales Revenue less: Cost of Goods Sold less: Selling Expenses less: Administrative Expenses 1 2 Non-Operating Section Add: Other Revenues and Gains Less: Other Expenses and Losses   Income Tax 3 Irregular Items 4 Discontinued Operations (net of tax) Extraordinary Items (net of  tax) Net Income 5 Earnings per Share 6
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5 1. Elements of the Income Statement 1. Elements of the Income Statement Comprehensive income - changes in net assets from all non-owner sources; is broken into two categories: net income : consisting of revenues, expenses, gains and losses (next slide) other comprehensive income Campbell’s Soup 2006 statement of Shareholders’ Equity
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6 1. Elements of the Income Statement 1. Elements of the Income Statement Revenues - increases in net assets for activities that constitute a company’s ongoing central operations. Expenses - decreases in net assets for activities that constitute a company’s ongoing central operations. Gains - increases in net assets for activities that constitute a company’s peripheral or incidental activities. Losses - decreases in net assets for activities that constitute a company’s peripheral or incidental activities.
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7 2. Format of the I/S 2. Format of the I/S See Page 573 for sample format: Sales - COGS = Gross profit - Operating expenses = Income from operations + Other revenues and gains - Other expenses and losses = Income from continuing operations (IFCO) +/-Discontinued operations +/-Extraordinary items = Net income (Note: text also includes “Change in Accounting Principles” but the FASB
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2. Format of the I/S 2. Format of the I/S First, note the subtotals Gross profit is presented when a company uses a multi-step income statement; more relevant for companies that are primarily retail or manufacturing (less relevant for service industries). Income from operations indicates income from primary, on-going activity (usual and frequent). Income from continuing operations (IFCO) also includes peripheral activity like interest income, as well as potentially nonrecurring activity like restructuring charges (unusual or infrequent). Net income
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Pratt_7e_Chapter13 - Chapter 13: Income Statement 2 What is...

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