Are the cost of resources used to earn revenues

This preview shows page 11 - 15 out of 100 pages.

We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Accounting
The document you are viewing contains questions related to this textbook.
Chapter 4 / Exercise EX4-14
Accounting
Reeve/Warren
Expert Verified
are the cost of resources used to earn revenues during a period. o They include: Cost of goods sold or cost of sales, Selling, general and administrative expenses, Research and development expense, other expense, and Income tax expense Component Elements of Income:
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Accounting
The document you are viewing contains questions related to this textbook.
Chapter 4 / Exercise EX4-14
Accounting
Reeve/Warren
Expert Verified
o Preparing an Income Statement: o o Income Statement Formats: o Companies prepare their income statements in one of two different formats: single-step income statements In a single-step income statement, there are only two categories: total revenues and total expenses. multiple-step income statements (aka “classified income statements”).
A multiple-step income statement provides classifications of revenues and expenses that financial statement users find useful, with three important subtotals: Form of the Income Statement: o Traditionally, the income statement is presented in the following multiple-step form : + Income from continuing operations + Income from discontinued operations* + Extraordinary Items* o = Net Income/Loss Extraordinary Items: Extraordinary items are events and transactions that are both unusual in nature and infrequent in occurrence . They must contain “a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity . . . [and] be of a type that would not reasonably be expected to recur in the foreseeable future. The line between “unusual” and “extraordinary” items is a fine line. To be extraordinary an item must be (a) unusual and (b) infrequent. In essence, an “unusual” item is one that is unusual but frequent. Extraordinary items are presented in the income statement on a net-of-tax basis. Extraordinary items and items from discontinued operations are presented in the income statement on a net-of-tax basis. All other items are presented on a gross-of-tax basis. + Other Comprehensive Income o = Comprehensive Income Comprehensive income is a fairly new development in financial reporting. The purpose of comprehensive income is to capture those unrecognized built-in gains and losses resulting from shifting market trends. Comprehensive income must be shown somewhere on the financial statements, although it does not matter where. Most companies include a report of comprehensive income as part of the statement of stockholders’ equity. Three of the more common adjustments made as “other comprehensive income” are: o Foreign currency translation adjustments o Unrealized gains and losses on available-for-sale securities o Deferred gains and losses on derivative financial instruments
Income Statement Summary: o + Income from continuing operations o + Income from discontinued operations o + Extraordinary Items = Net Income/Loss o + Other Comprehensive Income = Comprehensive Income o Remember: Extraordinary items and items from discontinued operations are presented in the income statement on a net-of-tax basis. All other items are presented on a gross-of-tax basis. Income Statement Financial Ratios: o Return on Sales

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture