Ch4_Class_Outline - Chapter 4 Chapter 4 Income Statement...

Info icon This preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 4 Page 1 of 14 Chapter 4: Income Statement and Related Information (REMEMBER: ALWAYS put headings on your financial statements, especially during the EXAMS. Points are subtracted if the financial statements do not list the company name, financial statement, date/time period. Also, ALWAYS date your journal entries.) The purpose of this chapter is to examine the different types of revenues, expenses, gains, and losses that affect the income statement and related information. 1) Income Statement : Report that measures the success of enterprise operations for a given period of time. Provides investors and creditors with info that helps them predict the amounts, timing, and uncertainty of future cash flows. (Objective #2 in our Basic Objectives from Chapters 1 and 2.) a Usefulness of the Income Statement : Income information is useful for: i) ii) iii) Information about the various components of income – revenues, expenses, gains, and losses – is helpful for assessing the likelihood that particular cash flows will continue in the future. b Limitations of the Income Statement : Net Income is an _________________ that reflects assumptions made. Users should be aware of its limitations. i) Items that cannot be measured reliably are not reported in the income statement. For example: (1) (2) ii) iii) c Quality of Earnings : If managers are focused on meeting financial targets, such as analysts’ forecasts to the detriment of good business practices, the quality of earnings and the quality of financial reporting will erode.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter 4 Page 2 of 14 Earnings management : It has a negative effect on earnings quality if it distorts the information that makes the current year (1) misrepresentative of a company’s true state and (2) less useful for predicting future earnings and cash flow. 2) Format of the Income Statement : Transaction approach : focuses on the income-related activities that have occurred during the period. That is, net income results from revenue, expense, gain, and loss transactions. ( Capital maintenance approach is the most common alternative. Here, income for the period is determined based on change in equity, after adjusting for investments by owners or dividends. However, the components of income are not evident in the capital maintenance approach.) a Elements of the Income Statement : i) Revenues : ii) Expenses : iii) Gains : iv) Losses : v) Gains and Losses : Some examples: b Single-Step Income Statement : LN : Aggregate Data. i) Just two groupings exist: _________________________________________ The single step is subtracting ______________________________________. Sometimes income tax is reported as the last item before net income (to show its relationship to income before income tax.) Example on page 130.
Image of page 2
Chapter 4 Page 3 of 14 ii) Example Format: SINGLE STEP FORM : Company Name Income Statement For the Year Ended 12/31/xx Revenues and Gains: Net Sales xx Other Revenue (e.g., Interest, Dividend revenue, Rent) xx Total Revenues and Gains: xx Expenses and Losses: Cost of goods sold xx Selling expenses xx General and Administrative expenses xx Depreciation expense xx Interest expense xx Total Expense and Losses xx Income from Continuing Operations
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern