Income Statement: Format, Formulas, Etc.

Selling Expenses

Expenses of promoting sales, such as displaying and advertising merchandise, making sales, and delivering goods to customers. Sales Commission, Advertising Expense, Depreciation Expense (Sales Equipment)

What are the limitations of the Income Statement?

1. Companies out items that cannot be measured reliably 2. Income is affected by the accounting methods employed 3. Income measurement involves judgement

What are the three major categories of various income items?

1. Unusual and/or infrequent gains and losses 2. Discontinued Operations 3. Non-controlling operations

Earnings Per Share

A measure of performance over the reporting period. Common Stock / Par Value = Outstanding Shares Net Income - Preferred Dividends / Outstanding Shares = Earnings Per Share

Non-controlling Interest

Allocation of income to non-controlling shareholders. The portion of equity (net assets) interest in a subsidiary not attributable to the parent company.

Multiple-Step Income Statement

An income statement that separates Operating transactions from Non-Operating transactions: Net Sales - Cost of Goods Sold = Gross Profit Operating Expenses - Selling Expenses - Administrative Expenses = Income From Operations Non-Operating Expenses - Other Revenues & Gains - Other Expenses & Losses = Income Before Income Tax - Income Tax Expense = Income from Continuing Operations +/-Discontinued Operations - Non-controlling Interests = Net Income or Net Loss Earnings Per Share

Single-Step Income Statement

An income statement that shows only one step in determining net income. Revenues - Expenses = Income Before Income Tax - Income Tax Expense = Income from Continuing Operations +/-Discontinued Operations - Non-controlling Interests = Net Income or Net Loss Earnings Per Share

What is the difference between Intraperiod and Interperiod tax allocation?

An intraperiod tax allocation is the allocation of income taxes to different parts of the results appearing in the income statement of a business, so that some line items are stated net of tax. An interperiod tax allocation is the temporary difference between the effects of tax policy on the financial reporting of a business and its normal financial reporting as mandated by an accounting framework, such as GAAP or IFRS.

Cost of Goods Sold

Beginning Inventory + Purchases + Freight-In - Purchase Discounts - Purchase Returns - Ending Inventory = Cost of Goods Sold

Losses

Decreases in equity (net assets) from peripheral or incidental transactions.

How do these various income items occur?

Discontinued Operations occurs when (1) a company eliminates

What is the Income Statement's Usefulness?

Evaluate past performances (Gives Feedback) Predicting Future Performances Helps assess the risk or uncertainty of achieving future cash flows.

What are the intermediate components of the Income Statement?

Format referred to as multi-step income statement Separates operating transactions from non-operating transactions Matches costs and expenses with related revenues Highlights certain component of income that analysts use in assessing financial performance.

Gains

Increases in equity (Net Assets) from peripheral or incidental transactions.

Revenues

Inflows or other enhancements of assets or settlements of its liabilities that constitute the entity's ongoing major or central operations. Sales Fee Interest Dividend Rent

Other Expenses and Losses

Interest expense; casualty losses; loss from sale or abandonment of property, plant, and equipment; and loss from strikes by employees and suppliers

Discontinued Operations

Material gains or losses resulting from the disposition of a component of the business.

Income Statement Title

Name of Company Income Statement For the year ending December 31, 2018

Gross Profit

Net Sales - Cost of Goods Sold = Gross Profit

Net Income

Net Sales - Cost of Goods Sold = Net Sales - Selling Expenses - Administrative Expenses + Other Revenues & Gains - Other Expenses & Losses = Income Before Income Tax - Income Tax Expense = Net Income or Net Loss

What is Net of Taxes?

Net of tax is the amount after adjusting for the effects of income tax. When something says NET OF TAX that means taxes have been pulled out! Always subtract the Tax Effect!!!!!!

What are the major elements of a multi-step income statement?

Operating Non-operating Income tax Discontinued Operations Non-controlling interest Earnings per share

Expenses

Outflows or other using-up of assets or incurrences of liabilities that constitute the entity's ongoing major or central operations. Cost of Goods Sold Depreciation Expense Interest Expense Rent Expense Salaries and Wages Expense Taxes Expense

What are the 4 elements of the Income Statement?

Revenues, Expenses, Gains, & Losses

Net Sales

Sales Revenue - Sales Discounts - Sales Returns & Allowances = Net Sales

What is the primary advantage of a single-step income statement?

Simplicity; simple presentation and the absence of any implication that one type of revenue or expense item has priority over another.

What are the two types of Income Statements?

Single-Step Income Statement Multiple-Step Income Statement

What section of the Income Statement is the same regardless of which statement you use?

The bottom section is the same: = Income Before Income Tax - Income Tax Expense = Income from Continuing Operations +/-Discontinued Operations - Non-controlling Interests = Net Income or Net Loss Earnings Per Share

Administrative Expense

The cost of running a business; legal expenses, accounting services, Salaries and Wages for Office Employees, Insurance Expense, Utilities Expense Depreciation Expense on Office Equipment.

What is quality of earnings?

The extent to which earnings is useful to investors and creditors in making resource allocation decisions, generally in terms of predicting future earnings and cash flow

What is the difference between Perpetual and Periodic Inventory Systems?

The periodic system relies upon an occasional physical count of the inventory to determine the ending inventory balance and the cost of goods sold, while the perpetual system keeps continual track of inventory balances.

What is earnings management?

The planned timing of revenues, expenses, gains, and losses to smooth out bumps in earnings; used to increase income in the current year at the expense of income in future years. "negatively affects quality of earnings because it distorts information in a way that is less useful for predicting future earnings and cash flows.

Condensed Income Statement

You can condense both types of Income Statements. A condensed Income Statement has no details presented, only category totals, Supplemental schedules support totals (Note D), and its Highly Summarized.

Other Revenues and Gains

interest revenue, dividend revenue, rent revenue, gain

What is intraperiod tax allocation?

is used by companies to report irregular items (except for unusual or infrequent gains and losses) on the income statement or statement of retained earnings, net of tax. * Helps users understand the impact of income taxes on the various components of net income * the allocation of tax within a period * intraperiod tax allocation on the income statement is used for: 1. Income From Continuing Operations 2. Discontinued Operations 3. Extraordinary Items ALWAYS SUBTRACT THE TAXES

Income Statement

reports operating success or failure for a period Lists revenues, expenses for a specific period of time: month, quarter, year. Aka: Statement of Operations, P&L Statement, Profit & Loss Statement, The Statement of Earnings

What are the elements of the Income Statement?

revenues, expenses, gains, and losses