the income statement and statement of cash flows n.
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The Income Statement and Statement of Cash Flows

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The Income Statement and Statement of Cash Flows

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  1. The Income Statement and Statement of Cash Flows Sid Glandon, DBA, CPA Associate Professor of Accounting

  2. Comprehensive Income • Total change in equity EXCLUDING transactions with owners

  3. Other Comprehensive Income • Comprehensive Income • Change in equity as a result of non-owner transactions • Net income, plus (minus) • Other Comprehensive Income • Unrealized gains/losses • Foreign currency translations • Presentation • Extension of income statement • Statement of comprehensive income • Statement of shareholders’ equity

  4. Elements of the Income Statement • Operating income • Revenues • Expenses • Other income (expense) • Gains • Losses

  5. Multiple-Step Income Statement • Separation of • Operating activities • Nonoperating activities • Classification of expenses by functions • matches costs and expenses with related revenues

  6. Separately Reported Items • Discontinued Operations (net of tax) • Extraordinary Items (net of tax)

  7. Format: Multi-Step Income Statement • Operating section • Nonoperating section • Income tax • Discontinued operations • Extraordinary items • Earnings per share

  8. Operating Section

  9. Nonoperating Section

  10. Separately Reported Items • Reported above the line - Income from continuing operations before income tax • Unusual gains and losses (if material) • Reported below the line - Income before discontinue operations and extraordinary item • Discontinued operations (net of tax) • Extraordinary items (net of tax)

  11. Separately Reported Items Reported Below the Line

  12. Intra-Period Tax Allocation • Income from operations • Discontinued operations • Extraordinary items

  13. Earnings Per Share (EPS) • Reported on the face of the income statement • Income before discontinued operations and extraordinary items • Separately reported items • Discontinued operations (net of tax) • Extraordinary items (net of tax) • Net income • EPS calculation • [Net income less preferred dividends] ÷ [weighted average of common shares outstanding]

  14. EPS

  15. Accounting Changes • Change in accounting principle • Change in estimate • Change in reporting entity

  16. Change in Accounting Principle • Accounted for retrospectively • Revise prior years’ financial statements • Note: that a change in amortization, depreciation or depletion method is a change in accounting principle, but is reported as a change in accounting estimate.

  17. Change in Accounting Estimate • Accounted for prospectively • Adjust current and future years • Estimates include: • Amortization • Depreciation • Depletion • Bad debt expense

  18. Change in Reporting Entity • Accounted for retrospectively • Revise prior years’ financial statements

  19. Correction of Accounting Errors • Required a prior period adjustment to retained earnings • Made to the earliest period reported in the comparative financial statements

  20. Retained Earnings Statement • Beginning balance • Prior period adjustment • correction of an error in the financial statements of a prior period • Income or loss • Dividends • Ending balance

  21. Statement of Cash Flows • Operating activities • Investing activities • Financing activities • Separately reported • Non-cash investing and/or financing activities

  22. Methods of Presenting Cash Flows from Operating Activities • Direct method • Indirect method • Reconciliation of net income to cash flows

  23. Indirect Method of Reporting Cash Flows from Operating Activities • Net income • Plus: • Non cash charges • Increases in current liabilities • Decreases in current assets • Less: • Increases in current assets • Decreases in current liabilities • Plus: losses from investing or financing activities • Less: gains from investing or financing activities • Net cash provided by (used by) operating activities