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inter acct exam 2
chapter 4
| Question | Answer |
|---|---|
| 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
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