4-1Prepared by Coby HarmonUniversity of California, Santa BarbaraIntermediate AccountingIntermediate AccountingPrepared by Coby HarmonUniversity of California, Santa BarbaraWestmont CollegeINTERMEDIATEACCOUNTINGF I F T E E N T H E D I T I O NPrepared byCoby HarmonUniversity of California Santa BarbaraWestmont Collegekiesoweygandtwarfieldteam for success
4-2Evaluate past performance.LO 1 Understand the uses and limitations of an income statement.Help assess the risk or uncertainty of achieving future cash flows.Predicting future performance.UsefulnessIncome StatementIncome Statement
4-3LimitationsLO 1 Understand the uses and limitations of an income statement.Companies omit items that cannot be measured reliably.Income is affected by the accounting methods employed.Income measurement involves judgment.Income StatementIncome Statement
4-4Format of the Income StatementFormat of the Income StatementLO 2 Describe the content and format of the income statement.Revenues– Inflows or other enhancements of assets or settlements of its liabilities that constitute the entity’s ongoing major or central operations.SalesFee Interest Examples of Revenue AccountsElements of the Income StatementDividend Rent
4-5Format of the Income StatementFormat of the Income StatementExpenses– Outflows or other using-up of assets or incurrences of liabilities that constitute the entity’s ongoing major or central operations.Examples of Expense AccountsElements of the Income StatementCost of goods soldDepreciation InterestRent Salaries and wagesTaxesLO 2 Describe the content and format of the income statement.
4-6Format of the Income StatementFormat of the Income StatementGains and lossescan result fromsale of investments or plant assets, settlement of liabilities, write-offs of assets.Elements of the Income StatementGains– Increases in equity (net assets) from peripheral or incidental transactions.Losses- Decreases in equity (net assets) from peripheral or incidental transactions.LO 2 Describe the content and format of the income statement.
4-7Format referred to as multiple-step income statement.Separates operating transactions from nonoperating transactions.Matches costs and expenses with related revenues.Highlights certain components of income that analysts use assessing financial performance.Format of the Income StatementFormat of the Income StatementIntermediate ComponentsLO 3 Prepare an income statement.
4-8Common for companies to present some or all of the following sections and totals within the income statement.1.Operating section 2.Nonoperating section3.Income tax4.Discontinued operations5.