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Study Smarter.....Study The Answers!

Income Statement

1) Key Things To Know 5) Medium Practice Test
2) Self Test 6) Hard Practice Test
3) Practice as You Learn 7) On Your Test
4) Easy Practice Test 8) Quick Study Sheet

 

Quick Study Sheet

 Revenues:  4 criteria that must be met for revenue to be recognized
1)  Delivery of goods or service    2)  evidence of arrangement for customer payment
3)  The price is fixed and determinable                  4)  Collection is reasonably assured
            Revenue is recognized when earned - NOT when cash is received.
 
Expenses:      1)  use up an asset       2)  service provided to the company that must be paid for
            Expenses are recognized when incurred - NOT when they are paid
 
The Matching Principle:   Expenses incurred to generate revenues must be
                                             recognized in the same period as the revenue
 
Accrual Basis of Accounting:
            Revenues are recorded when earned and expenses are recorded when incurred.
                        When cash is received or paid DOES NOT Matter
 
Format of the Single Step Income Statement:   For a period of time
            Total revenues – list them out and total them
            Total expenses – list them out and total them
                  Total revenues less total expenses = net income
 
Format of the Multi-step income statement:   For a period of time
 
              Sales
            - Cost of Goods Sold             
            =Gross Profit
            - Operating Expenses:
                 General and Administrative       Selling
                 Research & Development          Restructuring
            = Operating Income
            + - Other Revenues & Expenses:  (gains/losses/interest/rent income)
            = Income Before Taxes:
              - Tax Expense                                             
            = Income from Continuing Operations
            + - Discontinued Operations:
            + - Extraordinary Items
                                                                                
            =  Net Income
 
Operating income:  earned from primary day to day operations
Income from continuing operations:  earnings from all activities expected to continue       
Discontinued Operations:  Selling or disposing of a major part of the business
Extraordinary Item:  Both “Unusual and Infrequent” – not expected to happen again
Net Income:                Total earnings of the company for this period
 
Accrual Basis – required by GAAP
Revenues:  record when earned; the goods or services are provided
Expenses:  record when incurred; use up an asset or a service was provided to the company                                                            


 

 

 

 
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