西方財(cái)務(wù)會(huì)計(jì)原版課件

西方財(cái)務(wù)會(huì)計(jì)原版ppt課件CHAPTER4INCOMESTATEMENTANDRELATEDINFORMATIONIntermediateAccounting13thEditionKieso,Weygandt,andWarfield

CHAPTER4INCOMESTATEMUnderstandtheusesandlimitationsofanincomestatement.Prepareasingle-stepincomestatement.Prepareamultiple-stepincomestatement.Explainhowtoreportirregularitems.Explainintraperiodtaxallocation.Identifywheretoreportearningspershareinformation.Preparearetainedearningsstatement.Explainhowtoreportothercomprehensiveincome.LearningObjectivesUnderstandtheusesandlimitaElementsSingle-stepMultiple-stepCondensedincomestatementsIncomeStatementFormatoftheIncomeStatementReportingIrregularItemsSpecialReportingIssuesUsefulnessLimitationsQualityofEarningsDiscontinuedoperationsExtraordinaryitemsUnusualgainsandlossesChangesinaccountingprinciplesChangesinestimatesCorrectionsoferrorsIntraperiodtaxallocationEarningspershareRetainedearningsstatementComprehensiveincomeIncomeStatementandRelatedInformationElementsIncomeStatementFormatEvaluatepastperformance.IncomeStatementLO1Understandtheusesandlimitationsofanincomestatement.Helpassesstheriskoruncertaintyofachievingfuturecashflows.Predictingfutureperformance.UsefulnessEvaluatepastperformance.IncoCompaniesomititemsthatcannotbemeasuredreliably.IncomeStatementLimitationsLO1Understandtheusesandlimitationsofanincomestatement.Incomemeasurementinvolvesjudgment.Incomeisaffectedbytheaccountingmethodsemployed.CompaniesomititemsthatcannCompanieshaveincentivestomanageincometomeetorbeatWallStreetexpectations,sothatmarketpriceofstockincreasesandvalueofstockoptionsincrease.IncomeStatementLO1Understandtheusesandlimitationsofanincomestatement.Qualityofearningsisreducedifearningsmanagementresultsininformationthatislessusefulforpredictingfutureearningsandcashflows.QualityofEarningsCompanieshaveincentivestomFormatoftheIncomeStatementLO1Understandtheusesandlimitationsofanincomestatement.Revenues–Inflowsorotherenhancementsofassetsorsettlementsofitsliabilitiesthatconstitutetheentity’songoingmajororcentraloperations.SalesFeerevenueInterestrevenueDividendrevenueRentrevenueExamplesofRevenueAccountsElementsoftheIncomeStatementFormatoftheIncomeStatementFormatoftheIncomeStatementLO1Understandtheusesandlimitationsofanincomestatement.Expenses–Outflowsorotherusing-upofassetsorincurrencesofliabilitiesthatconstitutetheentity’songoingmajororcentraloperations.CostofgoodssoldDepreciationexpenseInterestexpenseRentexpenseSalaryexpenseExamplesofExpenseAccountsElementsoftheIncomeStatementFormatoftheIncomeStatementFormatoftheIncomeStatementLO1Understandtheusesandlimitationsofanincomestatement.Gains–Increasesinequity(netassets)fromperipheralorincidentaltransactions.Losses-Decreasesinequity(netassets)fromperipheralorincidentaltransactions.

Gainsandlossescanresultfromsaleofinvestmentsorplantassets,settlementofliabilities,write-offsofassets.ElementsoftheIncomeStatementFormatoftheIncomeStatementSingle-StepFormatLO2Prepareasingle-stepincomestatement.Thesingle-stepstatementconsistsofjusttwogroupings:RevenuesExpensesNetIncomeSingle-StepNodistinctionbetweenOperatingandNon-operatingcategories.Single-StepFormatLO2PreparThesingle-stepincomestatementemphasizesa. thegrossprofitfigure.b. totalrevenuesandtotalexpenses.c. extraordinaryitemsmorethanitisemphasized inthemultiple-stepincomestatement.d. thevariouscomponentsofincomefrom continuingoperations.ReviewSingle-StepFormatLO2Prepareasingle-stepincomestatement.Thesingle-stepincomestatemeSeparatesoperatingtransactionsfromnonoperatingtransactions.Matchescostsandexpenseswithrelatedrevenues.Highlightscertainintermediatecomponentsofincomethatanalystsuse.LO3Prepareamultiple-stepincomestatement.Multiple-StepFormatBackgroundSeparatesoperatingtransactioOperatingsectionNonoperatingsectionIncometaxDiscontinuedoperationsExtraordinaryitemsEarningspershareLO3Prepareamultiple-stepincomestatement.Multiple-StepFormatIncomeStatementSectionsOperatingsectionLO3PrepaMultiple-StepFormatLO3Prepareamultiple-stepincomestatement.Thepresentationdividesinformationintomajorsections.1.OperatingSection

2.NonoperatingSection

3.Incometax

Multiple-StepFormatLO3PrepMultiple-StepFormatIllustration(E4-4):Prepareanincomestatementfromthedatabelow.SolutiononnotespageMultiple-StepFormatIllustratiReviewAseparationofoperatingandnonoperatingactivitiesofacompanyexistsina. bothamultiple-stepandsingle-stepincome statement.b. amultiple-stepbutnotasingle-stepincome statement.c. asingle-stepbutnotamultiple-stepincome statement.d. neitherasingle-stepnoramultiple-stepincome statement.Multiple-StepFormatLO3Prepareamultiple-stepincomestatement.ReviewAseparationofoperatinCompaniesarerequiredtoreportirregularitemsinthefinancialstatementssouserscandeterminethelong-runearningpowerofthecompany.LO4Explainhowtoreportirregularitems.ReportingIrregularItemsIllustration4-5NumberofIrregularItemsReportedinaRecentYearby600LargeCompaniesCompaniesarerequiredtorepoIrregularitemsfallintosixcategoriesDiscontinuedoperations.Extraordinaryitems.Unusualgainsandlosses.Changesinaccountingprinciple.Changesinestimates.Correctionsoferrors.ReportingIrregularItemsLO4Explainhowtoreportirregularitems.IrregularitemsfallintosixDiscontinuedOperationsoccurswhen,(a) companyeliminatesthe

resultsofoperationsandcashflowsofacomponent.thereisnosignificantcontinuinginvolvementinthatcomponent.Amountreported“netoftax.”ReportingIrregularItemsLO4Explainhowtoreportirregularitems.DiscontinuedOperationsoccursIllustration:

KCCorporationhadaftertaxincomefromcontinuingoperationsof$55,000,000in2008.During2008,itdisposedofitsrestaurantdivisionatapretaxlossof$270,000.Priortodisposal,thedivisionoperatedatapretaxlossof$450,000in2008.Assumeataxrateof30%.PrepareapartialincomestatementforKC.ReportingDiscontinuedOperationsIncomefromcontinuingoperations $55,000,000Discontinuedoperations:

Lossfromoperations,netof$135,000tax 315,000

Lossondisposal,netof$81,000tax 189,000Netincome $54,496,000Totallossondiscontinuedoperations 504,000LO4Explainhowtoreportirregularitems.Illustration:KCCorporationReportingDiscontinuedOperationsDiscontinuedOperationsarereportedafter“Incomefromcontinuingoperations.”P(pán)reviouslylabeledas“NetIncome”.MovedtoLO4Explainhowtoreportirregularitems.ReportingDiscontinuedOperatiExtraordinaryitemsarenonrecurringmaterialitemsthatdiffersignificantlyfromacompany’stypicalbusinessactivities.ExtraordinaryItemmustbebothofanUnusualNatureandOccurInfrequentlyCompanymustconsidertheenvironmentinwhichitoperates.Amountreported“netoftax.”

ReportingIrregularItemsLO4Explainhowtoreportirregularitems.ExtraordinaryitemsarenonrecAretheseitemsExtraordinary?(a) Alargeportionofatobaccomanufacturer’scropsaredestroyedbyahailstorm.Severedamagefromhailstormsinthelocalitywherethemanufacturergrowstobaccoisrare.(b) Acitrusgrower'sFloridacropisdamagedbyfrost.(c) Acompanysellsablockofcommonstockofapubliclytradedcompany.Theblockofshares,whichrepresentslessthan10%ofthepublicly-heldcompany,istheonlysecurityinvestmentthecompanyhaseverowned.YESReportingExtraordinaryItemsNOYESLO4Explainhowtoreportirregularitems.AretheseitemsExtraordinary?AretheseitemsExtraordinary?(d) Alargediversifiedcompanysellsablockofsharesfromitsportfolioofsecuritieswhichithasacquiredforinvestmentpurposes.Thisisthefirstsalefromitsportfolioofsecurities.(e)Anearthquakedestroysoneoftheoilrefineriesownedbyalargemulti-nationaloilcompany.Earthquakesarerareinthisgeographicallocation.(f) Acompanyexperiencesamateriallossintherepurchaseofalargebondissuethathasbeenoutstandingfor3years.Thecompanyregularlyrepurchasesbondsofthisnature.NOReportingExtraordinaryItemsYESNOLO4Explainhowtoreportirregularitems.AretheseitemsExtraordinary?Illustration:

KCCorporationhadaftertaxincomefromcontinuingoperationsof$55,000,000in2007.Inaddition,itsufferedanunusualandinfrequentpretaxlossof$770,000fromavolcanoeruption.Thecorporation’staxrateis30%.PrepareapartialincomestatementforKCCorporationbeginningwithincomefromcontinuingoperations.Incomefromcontinuingoperations $55,000,000Extraordinaryloss,netof$231,000tax 539,000Netincome $54,461,000ReportingExtraordinaryItems($770,000x30%=$231,000tax)LO4Explainhowtoreportirregularitems.Illustration:KCCorporationExtraordinaryItemsarereportedafter“Incomefromcontinuingoperations.”P(pán)reviouslylabeledas“NetIncome”.ReportingExtraordinaryItemsMovedtoLO4Explainhowtoreportirregularitems.ExtraordinaryItemsarereporReportingIrregularItemsReportingwhenbothDiscontinuedOperationsandExtraordinaryItemsarepresent.DiscontinuedOperationsExtraordinaryItemLO4Explainhowtoreportirregularitems.ReportingIrregularItemsReporIrregulartransactionssuchasdiscontinuedoperationsandextraordinaryitemsshouldbereportedseparatelyina. bothasingle-stepandmultiple-stepincome statement.b. asingle-stepincomestatementonly.c. amultiple-stepincomestatementonly.d. neitherasingle-stepnoramultiple-stepincome statement.ReviewReportingIrregularItemsLO4Explainhowtoreportirregularitems.IrregulartransactionssuchasUnusualGainsandLossesMaterialitemsthatareunusualorinfrequent,butnotboth,shouldbereportedinaseparatesectionjustabove“Incomefromcontinuingoperationsbeforeincometaxes.”Examplescaninclude:Write-downsofinventoriesForeignexchangetransactiongainsandlossesTheBoardprohibitsnet-of-taxtreatmentfortheseitems.ReportingIrregularItemsLO4Explainhowtoreportirregularitems.UnusualGainsandLossesReportUnusualGainsandLossesReportingIrregularItemsLO4Explainhowtoreportirregularitems.Illustration4-9IncomeStatementPresentationofUnusualChargesUnusualGainsandLossesReportChangesinAccountingPrinciplesRetrospectiveadjustmentCumulativeeffectadjustmenttobeginningretainedearningsApproachpreservescomparabilityExamplesinclude:changefromFIFOtoaveragecostchangefromthepercentage-of-completiontothecompleted-contractmethodReportingIrregularItemsLO4Explainhowtoreportirregularitems.ChangesinAccountingPrinciplReportingIrregularItemsLO4Explainhowtoreportirregularitems.ChangeinAccountingPrinciple:

GaubertInc.decidedinMarch2010tochangefromFIFOtoweighted-averageinventorypricing.Gaubert’sincomebeforetaxes,usingthenewweighted-averagemethodin2010,is$30,000.Illustration4-10CalculationofaChangeinAccountingPrincipleIllustration4-11IncomeStatementPresentationofaChangeinAccountingPrinciple(Basedon30%taxrate)PretaxIncomeDataSolutiononnotespageReportingIrregularItemsLO4ChangesinEstimateAccountedforintheperiodofchangeandfutureperiodsNothandledretrospectivelyNotconsiderederrorsorextraordinaryitemsExamplesinclude:UsefullivesandsalvagevaluesofdepreciableassetsAllowanceforuncollectiblereceivablesInventoryobsolescenceReportingIrregularItemsLO4Explainhowtoreportirregularitems.ChangesinEstimateReportingIChangeinEstimate:

ArcadiaHS,purchasedequipmentfor$510,000whichwasestimatedtohaveausefullifeof10yearswithasalvagevalueof$10,000attheendofthattime.Depreciationhasbeenrecordedfor7yearsonastraight-linebasis.In2010(year8),itisdeterminedthatthetotalestimatedlifeshouldbe15yearswithasalvagevalueof$5,000attheendofthattime.Questions:Whatisthejournalentrytocorrecttheprioryears’depreciation?Calculatethedepreciationexpensefor2010.NoEntryRequiredChangeinEstimateExampleLO4Explainhowtoreportirregularitems.ChangeinEstimate:ArcadiaHEquipment$510,000FixedAssets:Accumulateddepreciation

350,000

Netbookvalue(NBV)$160,000BalanceSheet

(Dec.31,2009)ChangeinEstimateExampleAfter7yearsEquipmentcost $510,000Salvagevalue -10,000Depreciablebase 500,000Usefullife(original) 10yearsAnnualdepreciation $50,000x7years=$350,000

First,establishNBVatdateofchangeinestimate.LO4Explainhowtoreportirregularitems.Equipment$510,000FixedAssets:ChangeinEstimateExampleAfter7yearsNetbookvalue $160,000Salvagevalue(new) 5,000Depreciablebase 155,000Usefulliferemaining 8yearsAnnualdepreciation $19,375DepreciationExpensecalculationfor2010.Depreciationexpense 19,375 Accumulateddepreciation 19,375Journalentryfor2010LO4Explainhowtoreportirregularitems.ChangeinEstimateExampleAfteCorrectionsofErrorsResultfrom:mathematicalmistakesmistakesinapplicationofaccountingprinciplesoversightormisuseoffactsCorrectionstreatedaspriorperiodadjustments

AdjustmenttothebeginningbalanceofretainedearningsReportingIrregularItemsLO4Explainhowtoreportirregularitems.CorrectionsofErrorsReportingCorrectionsofErrors:Toillustrate,in2011,HillsboroCo.determinedthatitincorrectlyoverstateditsaccountsreceivableandsalesrevenueby$100,000in2010.In2011,Hillboromakesthefollowingentrytocorrectforthiserror(ignoreincometaxes).ReportingIrregularItemsLO4Explainhowtoreportirregularitems.Retainedearnings 100,000 Accountsreceivable 100,000CorrectionsofErrors:ToillRelatestheincometaxexpensetothespecificitemsthatgiverisetotheamountofthetaxexpense.Incometaxisallocatedtothefollowingitems:(1)

Incomefromcontinuingoperationsbeforetax(2) Discontinuedoperations(3) Extraordinaryitems(4) Changesinaccountingprinciple(5) CorrectionoferrorsSpecialReportingIssuesLO5Explainintraperiodtaxallocation.IntraperiodTaxAllocationRelatestheincometaxexpenseExtraordinaryGain:SchindlerCo.hasincomebeforeincometaxandextraordinaryitemof$250,000.Ithasanextraordinarygainof$100,000fromacondemnationsettlementreceivedononeitsproperties.Assuminga30percentincometaxrate.SpecialReportingIssuesLO5Explainintraperiodtaxallocation.IntraperiodTaxAllocationIllustration4-13ExtraordinaryGain:SchindlerExtraordinaryLoss:SchindlerCo.hasincomebeforeincometaxandextraordinaryitemof$250,000.Ithasanextraordinarylossfromamajorcasualtyof$100,000.Assuminga30percentincometaxrate.SpecialReportingIssuesLO5Explainintraperiodtaxallocation.IntraperiodTaxAllocationIllustration4-14ExtraordinaryLoss:SchindlerCalculationofTotalTaxExampleofIntraperiodTaxAllocation$24,000(135)(61)(231)$23,573LO5Explainintraperiodtaxallocation.Note:lossesreducethetotaltaxCalculationofTotalTaxExamplAnimportantbusinessindicator.Measuresthedollarsearnedbyeachshareofcommonstock.Mustbedisclosedonthetheincomestatement.SpecialReportingIssuesLO6Identifywheretoreportearningspershareinformation.

Netincome-Preferreddividends WeightedaveragenumberofsharesoutstandingEarningsPerShareAnimportantbusinessindicatoEarningsPerShare(BE4-8):

In2010,HollisCorporationreportednetincomeof$1,000,000.Itdeclaredandpaidpreferredstockdividendsof$250,000.During2010,Hollishadaweightedaverageof190,000commonsharesoutstanding.ComputeHollis’s2010earningspershare.SpecialReportingIssues-$250,000$1,000,000190,000=$3.95pershareLO6Identifywheretoreportearningspershareinformation.

Netincome-Preferreddividends WeightedaveragenumberofsharesoutstandingEarningsPerShare(BE4-8):ISpecialReportingIssuesLO6EPSDividebyweighted-averagesharesoutstandingSpecialReportingIssuesLO6EPLO7Preparearetainedearningsstatement.IncreaseNetincomeChangeinaccountingprincipleErrorcorrectionsDecreaseNetlossDividendsChangeinaccountingprinciplesErrorcorrectionsRetainedEarningsStatementSpecialReportingIssuesLO7PreparearetainedearniBeforeissuingthereportfortheyearendedDecember31,2011,youdiscovera$50,000error(netoftax)thatcaused2010inventorytobeoverstated(overstatedinventorycausedCOGStobelowerandthusnetincometobehigherin2010).WouldthisdiscoveryhaveanyimpactonthereportingoftheStatementofRetainedEarningsfor2011?SpecialReportingIssuesLO7Preparearetainedearningsstatement.BeforeissuingthereportforSpecialReportingIssuesLO7Preparearetainedearningsstatement.SolutiononnotespageSpecialReportingIssuesLO7RestrictedRetainedEarnings

DisclosedInnotestothefinancialstatementsAsAppropriatedRetainedEarningsLO7Preparearetainedearningsstatement.SpecialReportingIssuesRestrictedRetainedEarnings LComprehensiveIncome

Allchangesinequityduringaperiodexceptthoseresultingfrominvestmentsbyownersanddistributionstoowners.

Includes:allrevenuesandgains,expensesandlossesreportedinnetincome,andallgainsandlossesthatbypassnetincomebutaffectstockholders’equity.LO7Preparearetainedearningsstatement.SpecialReportingIssuesComprehensiveIncome LO7PreSpecialReportingIssuesOtherComprehensiveIncomeUnrealizedgainsandlossesonavailable-for-salesecurities.Translationgainsandlossesonforeigncurrency.Plusothers+ReportedinStockholders’EquityComprehensiveIncomeLO8Explainhowtoreportothercomprehensiveincome.SpecialReportingIssuesOtherReviewGainsandlossesthatbypassnetincomebutaffectstockholders'equityarereferredtoasa. comprehensiveincome.b. othercomprehensiveincome.c. priorperiodincome.d. unusualgainsandlosses.SpecialReportingIssuesLO8Explainhowtoreportothercomprehensiveincome.ReviewGainsandlossesthatbyThreeapproachestoreportingComprehensiveIncome(SFASNo.130,June1997):Asecondseparateincomestatement;Acombinedincomestatementofcomprehensiveincome;orAspartofthestatementofstockholders’equitySpecialReportingIssuesLO8Explainhowtoreportothercomprehensiveincome.ThreeapproachestoreportingSpecialReportingIssuesLO8Explainhowtoreportothercomprehensiveincome.Illustration4-19ComprehensiveIncomeSecondincomestatementSpecialReportingIssuesLO8SpecialReportingIssuesLO8Explainhowtoreportothercomprehensiveincome.ComprehensiveIncomeCombinedincomestatementSpecialReportingIssuesLO8SpecialReportingIssuesLO8Explainhowtoreportothercomprehensiveincome.ComprehensiveIncome-StatementofStockholder’sEquityIllustration4-20SpecialReportingIssuesLO8SpecialReportingIssuesLO8Explainhowtoreportothercomprehensiveincome.ComprehensiveIncome

-BalanceSheetPresentationIllustration4-21Regardlessofthedisplayformatused,theaccumulatedothercomprehensiveincomeof$90,000isreportedinthestockholders’equitysectionofthebalancesheet.SpecialReportingIssuesLO8ReviewTheFASBdecidedthatthecomponentsofothercomprehensiveincomemustbedisplayeda. inasecondseparateincomestatement.b. inacombinedincomestatementofcomprehensive income.c. asapartofthestatementofstockholders' equity.d. Anyoftheseoptionsispermissible.SpecialReportingIssuesLO8Explainhowtoreportothercomprehensiveincome.ReviewTheFASBdecidedthatthUnderiGAAP,companiesmustclassifyexpensesbyeithernatureorfunction.Ifacompanyusesthefunctionalexpensemethodontheincomestatement,disclosurebynatureisrequiredinthenotestothefinancialstatements.PresentationoftheincomestatementunderU.S.GAAPfollowseitherasingle-stepormultiple-stepformat.iGAAPdoesnotmentionasingle-stepormultiple-stepapproach.Inaddition,underU.S.GAAP,companiesmustreportanitemasextraordinaryifitisunusualinnatureandinfrequentinoccurrence.ExtraordinaryitemsareprohibitedunderiGAAP.UnderiGAAP,companiesmustclUnderiGAAP,companiesarerequiredtoprepareasaprimaryfinancialstatementeitherastatementofstockholders’equitysimilartotheonepreparedunderU.S.GAAPorastatementofrecognizedincomeandexpense(calledaSoRIE).BothiGAAPandU.S.GAAPhaveitemsthatarerecognizedinequityaspartofcomprehensiveincomebutdonotaffectnetincome.U.S.GAAPprovidesthreepossibleformatsforpresentingthisinformation.iGAAPallowseitherthestatementofstockholders’equityapproachortheSoRIEformat.UnderiGAAPrevaluationofland,buildings,andintangibleassetsispermitted.UnderiGAAP,companiesarereqCopyright?2009JohnWiley&Sons,Inc.Allrightsreserved.ReproductionortranslationofthisworkbeyondthatpermittedinSection117ofthe1976UnitedStatesCopyrightActwithouttheexpresswrittenpermissionofthecopyrightownerisunlawful.RequestforfurtherinformationshouldbeaddressedtothePermissionsDepartment,JohnWiley&Sons,Inc.Thepurchasermaymakeback-upcopiesforhis/herownuseonlyandnotfordistributionorresale.ThePublisherassumesnoresponsibilityforerrors,omissions,ordamages,causedbytheuseoftheseprogramsorfromtheuseoftheinformationcontainedherein.CopyrightCopyright?2009JohnWiley&西方財(cái)務(wù)會(huì)計(jì)原版ppt課件CHAPTER4INCOMESTATEMENTANDRELATEDINFORMATIONIntermediateAccounting13thEditionKieso,Weygandt,andWarfield

CHAPTER4INCOMESTATEMUnderstandtheusesandlimitationsofanincomestatement.Prepareasingle-stepincomestatement.Prepareamultiple-stepincomestatement.Explainhowtoreportirregularitems.Explainintraperiodtaxallocation.Identifywheretoreportearningspershareinformation.Preparearetainedearningsstatement.Explainhowtoreportothercomprehensiveincome.LearningObjectivesUnderstandtheusesandlimitaElementsSingle-stepMultiple-stepCondensedincomestatementsIncomeStatementFormatoftheIncomeStatementReportingIrregularItemsSpecialReportingIssuesUsefulnessLimitationsQualityofEarningsDiscontinuedoperationsExtraordinaryitemsUnusualgainsandlossesChangesinaccountingprinciplesChangesinestimatesCorrectionsoferrorsIntraperiodtaxallocationEarningspershareRetainedearningsstatementComprehensiveincomeIncomeStatementandRelatedInformationElementsIncomeStatementFormatEvaluatepastperformance.IncomeStatementLO1Understandtheusesandlimitationsofanincomestatement.Helpassesstheriskoruncertaintyofachievingfuturecashflows.Predictingfutureperformance.UsefulnessEvaluatepastperformance.IncoCompaniesomititemsthatcannotbemeasuredreliably.IncomeStatementLimitationsLO1Understandtheusesandlimitationsofanincomestatement.Incomemeasurementinvolvesjudgment.Incomeisaffectedbytheaccountingmethodsemployed.CompaniesomititemsthatcannCompanieshaveincentivestomanageincometomeetorbeatWallStreetexpectations,sothatmarketpriceofstockincreasesandvalueofstockoptionsincrease.IncomeStatementLO1Understandtheusesandlimitationsofanincomestatement.Qualityofearningsisreducedifearningsmanagementresultsininformationthatislessusefulforpredictingfutureearningsandcashflows.QualityofEarningsCompanieshaveincentivestomFormatoftheIncomeStatementLO1Understandtheusesandlimitationsofanincomestatement.Revenues–Inflowsorotherenhancementsofassetsorsettlementsofitsliabilitiesthatconstitutetheentity’songoingmajororcentraloperations.SalesFeerevenueInterestrevenueDividendrevenueRentrevenueExamplesofRevenueAccountsElementsoftheIncomeStatementFormatoftheIncomeStatementFormatoftheIncomeStatementLO1Understandtheusesandlimitationsofanincomestatement.Expenses–Outflowsorotherusing-upofassetsorincurrencesofliabilitiesthatconstitutetheentity’songoingmajororcentraloperations.CostofgoodssoldDepreciationexpenseInterestexpenseRentexpenseSalaryexpenseExamplesofExpenseAccountsElementsoftheIncomeStatementFormatoftheIncomeStatementFormatoftheIncomeStatementLO1Understandtheusesandlimitationsofanincomestatement.Gains–Increasesinequity(netassets)fromperipheralorincidentaltransactions.Losses-Decreasesinequity(netassets)fromperipheralorincidentaltransactions.

Gainsandlossescanresultfromsaleofinvestmentsorplantassets,settlementofliabilities,write-offsofassets.ElementsoftheIncomeStatementFormatoftheIncomeStatementSingle-StepFormatLO2Prepareasingle-stepincomestatement.Thesingle-stepstatementconsistsofjusttwogroupings:RevenuesExpensesNetIncomeSingle-StepNodistinctionbetweenOperatingandNon-operatingcategories.Single-StepFormatLO2PreparThesingle-stepincomestatementemphasizesa. thegrossprofitfigure.b. totalrevenuesandtotalexpenses.c. extraordinaryitemsmorethanitisemphasized inthemultiple-stepincomestatement.d. thevariouscomponentsofincomefrom continuingoperations.ReviewSingle-StepFormatLO2Prepareasingle-stepincomestatement.Thesingle-stepincomestatemeSeparatesoperatingtransactionsfromnonoperatingtransactions.Matchescostsandexp