CAPITULO 4 INTERMEDIA

CAPITULO 4 INTERMEDIA - Chapter 4 Income Statement and...

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Chapter 4 Income Statement and Related Information · 4–1 CHAPTER 4 INCOME STATEMENT AND RELATED INFORMATION This IFRS Supplement provides expanded discussions of accounting guidance under International Financial Reporting Standards (IFRS) for the topics in Intermediate Accounting. The discussions are organized according to the chapters in Intermediate Accounting (13 th or 14 th Editions) and therefore can be used to supplement the U.S. GAAP requirements as presented in the textbook. Assignment material is provided for each supplement chapter, which can be used to assess and reinforce student understanding of IFRS. FORMAT OF THE INCOME STATEMENT Elements of the Income Statement Net income results from revenue, expense, gain, and loss transactions. The income state- ment summarizes these transactions. This method of income measurement, the trans- action approach , focuses on the income-related activities that have occurred during the period. 1 The statement can further classify income by customer, product line, or func- tion or by operating and non-operating, and continuing and discontinued. The two major elements of the income statement are as follows. 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. 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. [1] ELEMENTS OF FINANCIAL STATEMENTS 1 The most common alternative to the transaction approach is the capital maintenance approach to income measurement. Under this approach, a company determines income for the period based on the change in equity, after adjusting for capital contributions (e.g., investments by owners) or distributions (e.g., dividends). The main drawback associated with the capital maintenance approach is that the components of income are not evident in its measurement. Various tax authorities use the capital maintenance approach to identify unreported income and refers to this approach as the “net worth check.” 2 The IASB takes the position that income includes both revenues and gains because they both increase economic benefits. Similarly, expenses include both expenses and losses because they both decrease economic benefits. The definition of income includes both revenues and gains. Revenues arise from the ordinary activities of a company and take many forms, such as sales, fees, interest, dividends, and rents. Gains represent other items that meet the definition of income and may or may not arise in the ordinary activities of a company. Gains include, for example, gains on the sale of long-term assets or unrealized gains on trading securities. The definition of expenses includes both expenses and losses. Expenses generally
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This note was uploaded on 02/02/2012 for the course ACCO 3350 taught by Professor Alvarez during the Spring '11 term at American International.

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CAPITULO 4 INTERMEDIA - Chapter 4 Income Statement and...

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