ch04x - 4 Income Statement and Related Information LEARNING LEARNING OBJECTIVES OBJECTIVES After studying this chapter you should be able to 1

ch04x - 4 Income Statement and Related Information...

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Slide 4-1 1. Understand the uses and limitations of an income statement. 2. Understand the content and format of the income statement. 3. Prepare an income statement. 4. Explain how to report items in the income statement. 5. Identify where to report earnings per share information. 6. Explain intraperiod tax allocation. 7. Understand the reporting of accounting changes and errors. 8. Prepare a retained earnings statement. 9. Explain how to report other comprehensive income. After studying this chapter, you should be able to: Income Statement and Related Information 4 LEARNING OBJECTIVES LEARNING OBJECTIVES
Slide 4-2 Evaluate past performance. Help assess the risk or uncertainty of achieving future cash flows. Predict future performance. Usefulness INCOME STATEMENT INCOME STATEMENT LO 1
Slide 4-3 Limitations Companies omit items that cannot be measured reliably. Income numbers are affected by the accounting methods employed. Income measurement involves judgment. INCOME STATEMENT INCOME STATEMENT LO 1
Slide 4-4 Companies have incentives to manage income to meet earnings targets or to make earnings look less risky. Earnings management is the planned timing of revenues, expenses, gains, and losses to smooth out earnings. Quality of earnings is reduced if earnings management results in information that is less useful for predicting future earnings and cash flows. Quality of Earnings INCOME STATEMENT INCOME STATEMENT LO 1
Slide 4-5 FORMAT OF THE INCOME STATEMENT FORMAT OF THE INCOME STATEMENT INCOME – Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from shareholders. Elements of the Income Statement LO 2
Slide 4-6 INCOME includes both revenues and gains. Revenues - ordinary activities of a company Gains - may or may not arise from ordinary activities. FORMAT OF THE INCOME STATEMENT FORMAT OF THE INCOME STATEMENT Elements of the Income Statement Revenue Accounts Sales revenue Fee revenue Interest revenue Dividend revenue Rent revenue Gain Accounts Gains on the sale of long-term assets Unrealized gains on trading securities. LO 2
Slide 4-7 FORMAT OF THE INCOME STATEMENT FORMAT OF THE INCOME STATEMENT EXPENSES – Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to shareholders. Elements of the Income Statement LO 2
Slide 4-8 Expense Accounts Cost of goods sold Depreciation expense Interest expense Rent expense Salary expense EXPENSES include both expenses and losses.

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