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inter acct exam 2

chapter 4

QuestionAnswer
Income Statement report that measures success of a company for a given period of time
Usefulness of INC STATE Helps predict future cash flows by: 1.)Evaluating the past performance of the company 2.) Provide a basis for predicting future performance 3) Help assess the risk or uncertainty of achieving future cash flows
LIimitations of inc state 1. companies omit items from inc state they cannot measuere 2. Income numbers are affected by the accounting methods like depreciation and etc. 3. Judgement can differ
earnings management the planned timing of revenues, expenses, gains, and losses to smooth out bumps in earnings. NEGATIVELY impacts QUALITY OF EARNINGS
transaction approach income-related activities that have occurred during the period
Gains Increases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from revenues or investments by owners
LOSSES Decreases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from expenses or distributions to owners
Income statement basic informal format • 1Primary Income • 2Secondary Source of Income • 3Primary Sources + 2ndary Sources =1. Continuing Operations (into future) • 4. Discontinued Operations • 5. Extraordinary item • 6. Noncontrolling Interest • 7Earnings per common Share
Income statement book basic formal 1Operating Section 2 NOn operating section 3 income tax of continuing operations 4Discontinued operations 5Extraordinary items 6non controlling interest 7EPS
1Operating Section A report of the revenues and expenses of the company’s principal operations. 1. Sales/revenue-(Sales Discounts+ Sales R/A)=net sales 2.Cost of Goods SOld 3. Selling Expenses= expenses related to selling 4. Admin. Expenses= expense not related to sales
2NONOPERATING SECTION 1. other revenues and Gains 2. Other expneses and losses
3. INCOME TAx A section reporting federal and state taxes levied on income from continuing operations.
4. DISCONTINUED OPERATIONS Material gains or losses resulting from the disposition of a component of the business.
5. EXTRAORDINARY ITEMS Unusual and infrequent material gains and losses.
6. NONCONTROLLING INTEREST Allocation of income to noncontrolling shareholders
7.EPS net income minus preferred dividends (income available to common stockholders), divided by the weighted average of common shares outstanding
what does INcome state measure measures success
continuing ops primary ops+secondary ops
single step inc state just revenues - expenses
multi step everything is included
Periodic inventory o Beginning Inventoy + Net purchases + Freight in=Available for Sale o Available for Sale-Ending Inventory=Cost of Goods Sold
Available for sale o Beginning Inventoy + Net purchases + Freight in=Available for Sale
Cost of Goods Sold o Available for Sale-Ending Inventory
• current operating performance approach- only transactions that dealt with profit loss this year
• All inclusive o Class def- all transactions from all years must be included
• Difference between current operating and all inclusive o Correction of errors
• modified allinclusive concept. o This is the method used today.
• Switching from doubling depreciation to straight line  Debit Accumulated Depreciation, credit Retained Earnings, credit income Tax Payble
• Comprehensive Income, everything that changes equity
o Operating cycle time it takes to convert your inventory into accounts recievable and recievable into cash
Liquidity how fast something can be turned into cash
Solvency ability of company to pay debts
financial flexibility measures the “ability of an enterprise to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities.
Liabilities obligation to transfer assets or provide services to other entities
Created by: Virajasaur