ch04 - Chapter 4 Reporting Financial Performance Reporting...

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Unformatted text preview: Chapter 4 Reporting Financial Performance Reporting Financial Performance Format of the Format of the Income Income Statement Statement Elements Elements Single-step Single-step Multiple-step Multiple-step Intermediate Intermediate components components Condensed Condensed income income statement statement Income Income Statement Statement Usefulness Usefulness Limitations Limitations Quality of Quality of earnings earnings Reporting Irregular Reporting Irregular Items Items Discontinued Discontinued operations operations *Extraordinary *Extraordinary items* items* Unusual gains and Unusual gains and losses losses Changes in Changes in estimates estimates Special Special Reporting Reporting Issues Issues Intraperiod tax Intraperiod tax allocation allocation Earnings per Earnings per share share Retained Retained earnings earnings statement statement Comprehensive Comprehensive income income Perspectives Perspectives International International Financial Reporting • Business Model identifies three activities: 1. Financing • Obtaining cash funding 1. Investing • Use of funding to obtain resources 1. Operating • Use of resources to generate profits • Financial statements should capture these fundamental business activities Financial Reporting 1. Balance Sheet/Statement of Financial Position • Reports financing and investing activities 1. Income Statement/Statement of Comprehensive Income • Reports operating and performance related activities 1. Statement of Cash Flows • Reports interrelationship between all three activities Uses and Limitations of the Income Statement Uses: • Evaluate past performance and profitability • Assist in predicting future performance • Assess potential risk or uncertainty in achieving future cash flows Limitations: • Items are excluded if they cannot be measured reliably • Amounts reported are affected by accounting methods used • Use of estimates in measuring income Quality of Earnings The reliability of the information presented is dependent on the quality of earnings Characteristics of high quality earnings: 1. Nature of Content • Unbiased and determined objectively • Represents economic reality • Reflects earnings from ongoing operations • Can be correlated with cash flows from operations • Presentation • Does not disguise or mislead (transparent) • Information presented is understandable • Also, information is clear and concise •...
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This note was uploaded on 12/16/2011 for the course ACCOUNTING 400 taught by Professor Jason during the Spring '10 term at Ranger.

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ch04 - Chapter 4 Reporting Financial Performance Reporting...

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