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29 Cards in this Set
- Front
- Back
define income statement
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the report that measures the success of company operations for a given period of time
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why do investors and creditors use the income statement?
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1.evaluate past performance
2.provide a basis for predicting future performance 3. help assess the risk or uncertainty of achieving future cash flows |
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what elements are found in the income statement?
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revenue,expense,gain,and losses
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what are some limitations of the income statement?
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1. companies omit items from the i.s that they cannot measure reliably
2. income #'s are affected by the accounting methods employed 3. income measurement involves judgement. |
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what is earnings management?
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the planned timing of revenues, expenses, gains and losses to smooth bumps in earnings
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T/F. earnings management can negatively affect the quality of earnings.
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true. if it distorts the info in a way that is less useful for predicting future earnings and cash flows
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define revenues
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inflows or other enhancements of assets of an entity during a period from activities that constitute the entity's ongoing major operations
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define expenses
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outflows or other using up of assets during a period from carrying out activities that constitute the entity's ongoing major operations
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define gains
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increase in equity (net assets) from peripherial or incidental transactions of an entity
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define losses
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decrease in equity (net assets) from peripherial or incidental transactions of an entity
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name some examples of revenues
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sales,interest,rents
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what are some examples of expenses
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cost of goods sold,interest
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describe the format of a single step income statement
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it consists of only two groups: revenues and expenses. expenses are deducted from revenues to arrive at net income or loss
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what are the 6 sections of a multistep income statement (in order)
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1. operating section
2. non operating section 3. income tax 4. discontinued operations 5. extraordinary items 6. earnings per share |
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what are the four sections found in the operating section of a multistep i.s.
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1. sales/revenue
2. cost of goods sold 3. selling expense 4. administrative or general expense |
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what are the two sections found in the non operating section of a multistep i.s
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1. other revenue/gains
2. other expenses/losses |
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what are six categories of irregular items?
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1. discontinued operations
2. extraordinary items 3. unusual gains and losses 4. changes in accounting principle 5. changes in estimates 6. corrections of errors |
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when is something classified as a discontinued operation?
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a company eliminates the results of perations and cash flows of a component from its ongoing operations and there is no significant continuing involvement in that component after the disposal transaction.
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how is discontinued operations shown on the i.s
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shown net of tax before extraordinary items and after continuing operations
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what are extraordinary items
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events and transactions that are unusual in nature and infrequent in occurrence
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give two examples of an extraordinary item
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1. prohibition of a newly enacted law
2. earthquake in nyc |
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how are extraordinary items shown in the i.s?
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net of taxes in a seperate section just before net income
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define unusual gains and losses
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unusual or infrequent but not both
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how are unusual gains or losses shown on the income statement?
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in seperate section above income before extraordinary items. not shown net of tax
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what is changes of principle?
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change from one generally accepted principle to another
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what is intraperiod tax allocation?
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companies report irregular items (except for unusual gains and losses) on the income statement net of tax.
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what items on the income statement have intraperiod tax allocation?
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income from continuing operations, discontinued operations, and extraordinary items.
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what is earnings per share?
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net income - preferred dividends divided by weighted average of common shares outstanding.
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what is comprehensive income?
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all changes in equity during a period except those resulting from investments by owners nad distributions to owners.
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