Chapter 3 Income Statement and Statement of Stockholders' Equity

Chapter 3 Income Statement and Statement of Stockholders' Equity

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Chapter 3: Income Statement and Statement of Stockholders' Equity Sunday, February 12, 2012 6:55 PM 1. The income statement, also called the statement of earnings, presents revenues, expenses, net income, and earnings per share for an accounting period, generally a year or a quarter 2. Statement of stockholders' equity: documents the changes in the balance sheet equity accounts from one accounting period to the next 3. The income statement 1.a. Multiple-step format: provides several intermediate profit measures (gross profit, operating profit, and earnings before income tax) prior to the amount of net earnings for the period 1.a.i. Should be used for purposes of analysis 1.a. Single step version: groups all items of revenue together then deducts all categories of expense to arrive at a figure for net income 1.b. Certain special items must be disclosed separately on an income statement (regardless of format) 1.a.i. Discontinued operations 1.a.i. Extraordinary transactions 1.a. FASB passed a rule requiring companies to report comprehensive income 1.a.i. Comprehensive income: change in equity of a company during a period from transactions, other events, and circumstances relating to nonowner sources 1.a.i.1. Required to report total comprehensive income in one of three ways: 1.a.i.1.a. On the face of its income statement 1.a.i.1.b. In a separate statement of comprehensive income 1.a.i.1.c. In its statement of stockholders' equity 1. Common-size income statement 1.a. Useful analytical tool to compare firms with different levels of sales or total assets, facilitate internal or structural analysis of a firm, evaluate trends, and make industry comparisons 1.b. Expresses each income statement item as a percentage of net sales 1.c. Shows the relative magnitude of various expenses relative to sales, the profit percentages (gross profit, operating profit, and net profit margins), and the relative importance of "other" revenues and expenses 1. Net sales 1.a. Total sales revenue for each year of the three year period is shown net of returns and allowances 1.b. Sales return: a cancellation of a sale 1.c. Sales allowance: a deduction from the original sales invoice price 1.d. If a company's sales are increasing/decreasing, it is important to determine whether the change is a result of price, volume, or a combination of both 1.a.i. A related issue is whether sales are growing in "real" (inflation-adjusted) as well as "nominal" (as reported) terms 1. Cost of goods sold 1.a. The first expense deduction from sales is the cost to the seller of products or services sold to customers (CGS)
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1.b. The amount of CGS will be affected by the cost flow assumption used to value inventory 1.c. Cost of goods sold percentage: the relationship between CGS and net sales;
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This note was uploaded on 03/05/2012 for the course BUSI 407 taught by Professor Bowen during the Spring '11 term at UNC.

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Chapter 3 Income Statement and Statement of Stockholders' Equity

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