Income Statement: Accounting 3110
Steps on the Income Statement:
1 Calculate gross profit 2 Calculate operating income 3 Subtract/Add Interest = Net Income
Operating Income =
Gross Profit - Expenses (general,operating) = Operating Income
if there is a tax what do you do to get net income?
Income before income tax total - income tax expense = net income this could just be lumped into other expenses because it is just subtracted from operating income.
how is income tax expense calculated?
Income before tax * % Income tax rate = Income tax expense
Interest Expense Add or Subtract from Operating Income to get Net Income?
Interest Expense is Subtracted Operating income - interest expense
Interest Revenue added or subtracted from operating income to get net income?
Interest Revenue is Added operating income + interest revenue
The last step of the income statement to get net income
Operating Income - interest expense + interest revenue = net income
Single step net income calculation:
Revenues - Expenses = Net Income
Gross Profit =
Sales - Cost of Goods Sold = Gross Profit
Revenues calculated by:
Sales - discounts + gain of sale on property = revenue
what is comprehensive income?
comprehensive income is the change in equity of a company during the a period from transactions ad circumstances relating to non owner sources
Expenses Calculated by:
cost of goods + selling expenses + general and admin expenses + interest expense + income tax expense = total expenses
how does reporting separately the results of a companies continuing and discontinuing operations and highlighting the material aspect involving the sale of discontinued components help?
financial statement users have better information about the companies current period performance to develop expectations of the companies operations that will be continuing in the future.
After calculating operating income there is often a section for other items this may include interest expense, interest revenue and what else?
gain on sale of property which should be added to the operating income. operating income + gain on sale of property
If tax is involved after subtracting/adding the other expenses such as interest expense, interest revenue, gain on sale of property the total you get is?
income before income tax.
What assets may be consisted in a component?
inventory, property plant and equipment,
Component of a business
involves operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes.
what does comprehensive income include?
it includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
what two things does results from discontinued operations include?
it includes the income (loss) from the operations of the discontinued components until the date of sale and the gain (loss) from its sale, both are reported net of income tax.
Calculate earnings per common share?
net income / common shares = earnings per common share
A companies net income for an accounting period is measured as?
net income = revenues - expenses + gains - losses
What are the four components of the income statement?
revenues, expenses, gains, loses,
What to do if the problem has a sales discount? what will the formula look like?
sales discounts should be subtract form sales to get net sales. then cost of goods sold should be subtracted to get gross profit. Sales - sales discounts - cost of goods sold = gross profit
examples of components of a company:
subsidiary, an operating segment, division, a separate cash generating unit (restaurant or store, or an asset group.
what is an example of a strategic shift?
the disposal of major geographic areas or major line of business.
What is the purpose of the income statement?
the purpose of an income statement includes informing stakeholders so they can: evaluate profitability and asses the return on investment in the company, assess the companies operating capability and financial performance of rat current period over time, evaluate managements performance over time, predict the company's future income and cash flows, understand the components of income, assess the company's risk, compare performance against other companies, assess the impact of economic factors on the company.
Were is results from discontinued operations section included?
the results form discontinued operations section is included right after continuing operations
when does a company report the results from discontinued operations section?
when the disposal of the business component represents a strategic shift that will have a major effect on a companies operations and financial results.
accrual accounting
a company records the economic effects of transactions, events, and circumstances in the period when they occur rather than when cash is received.
capital maintenance concept
a corporations net income for a period of time is the amount that it could distribute to shareholders without depleting the capital the shareholders have invested
what liabilities may consist in a component?
accounts payable and bonds payable
Discontinued operations
arises when a company discontinues or plans to discontinue a business, a component of a business or a group of components of business