Income Statement (Flashcards: Single-sided) Your AccountingCoach PRO membership includes lifetime access to all of our materials. Take a quick tour by visiting www.accountingcoach.com/quicktour.
This financial statement reports a company s revenues, expenses, gains, losses for the period indicated in its heading. This is sometimes referred to as the P&L. Under the accrual method of accounting, a company reports these when they are earned. Examples include sales and fees earned. Q1 Q2 Under the accrual method of accounting, a company reports these when they are incurred in producing revenues or when they have been used up. These revenues refer to amounts earned by a company from its main products or services. Q3 Q4 This term refers to the revenues earned by selling a product. These expenses are associated with a company s main activities and include a retailer s costs of goods sold and its selling, general and administrative (SG&A) expenses. Q5 Q6 These revenues come from outside of a company s main activities. An example is the interest earned by a clothing store. These are positive income statement amounts that are not revenues. One of these occurs when plant assets are sold for more than their book value. Q7 Q8 For personal use by the original purchaser only. Copyright AccountingCoach.com. 2
Expenses that are outside of a company s main activities such as the interest expense incurred by a retail store. These are negative income statement amounts that are not expenses. One of these occurs when plant assets are sold for less than their book value. Q9 Q10 This type of income statement has two or more columns of amounts so the reader can relate the most recent amounts to amounts in an earlier accounting period. These income statements are issued for periods other than the official annual income statements. An example is the quarterly income statements. Q11 Q12 A corporation s net income (after the preferred dividend requirement) divided by the weighted average number of shares of common stock outstanding. This income statement format when used by a retailer will report amounts in the following order: sales, cost of goods sold, gross profit, operating expenses, operating income, nonoperating revenues and nonoperating expenses, net income. Q13 Q14 This income statement format has one subtraction: operating and nonoperating revenues and gains minus operating and nonoperating expenses and losses = net income. This is defined as net sales minus cost of goods sold. Q15 Q16 For personal use by the original purchaser only. Copyright AccountingCoach.com. 3
This is the amount before nonoperating revenues and nonoperating expenses. In a multiple-step income statement it is the remainder after subtracting operating expenses (SG&A) from gross profit. This method is required by large corporations and it reports revenues when they are earned, and expenses when they occur. Q17 Q18 These are a company s operating expenses other than the cost of goods sold. They are period expenses as opposed to product costs. This includes a company s net income reported on its income statement plus other comprehensive income (income or losses from currency translation, hedging, availablefor-sale securities, pensions, etc.) Q19 Q20 This refers to the income associated with currency translation, hedging, available-forsale securities, pensions, etc. This category of income is not included in the net income that is reported on the income statement. This term is used when referring to a corporation s common stock that is traded on a major stock exchange. Q21 Q22 A relatively rare income statement item that is both 1) unusual in nature, and 2) infrequent in occurrence. (The FASB is in the process of eliminating this item.) This term refers to an accounting period of January 1 through December 31. Q23 Q24 For personal use by the original purchaser only. Copyright AccountingCoach.com. 4
This term refers to an accounting year that does not end on December 31. This basic accounting principle requires companies to accrue some expenses and to defer some expenses. Q25 Q26 This is likely to be the largest operating expense on the income statement of a retailer or manufacturer. It requires that a cost flow such as FIFO or LIFO be used. This is indicated by the date in the heading of an income statement. Q27 Q28 The term or acronym for the common accounting rules and standards followed in the U.S. They are developed by the Financial Accounting Standards Board. This is the non-government organization that develops the accounting standards in the U.S. Q29 Q30 This U.S. government agency has regulatory power over the U.S. stock exchanges and the reporting requirements of the corporations with stock trading on those stock exchanges. This concept allows large companies to round amounts on their financial statements and to immediately expense inexpensive equipment. Q31 Q32 For personal use by the original purchaser only. Copyright AccountingCoach.com. 5
This is the systematic allocation of a plant asset s cost to expense over the useful life of the asset. This is necessary because of the matching principle. This type of income statement restates each amount to be a percentage of net sales or net revenues. Q33 Q34 These are required with external financial statements in order to comply with the full disclosure principle. The company s significant accounting policies are one of the disclosures. This cost flow assumption removes from inventory the most recent costs first and charges them to the cost of goods sold. As a result, the older costs remain in inventory. Q35 Q36 This cost flow assumption removes from inventory the oldest cost first and charges them to the cost of goods sold. As a result, the most recent costs remain in inventory. Q37 For personal use by the original purchaser only. Copyright AccountingCoach.com. 6
Terms/Answers Q1. Q2. Q3. Q4. Q5. Q6. Q7. Q8. Q9. Q10. Q11. Q12. Q13. Q14. Q15. Q16. Q17. Q18. Q19. Q20. Q21. Q22. Q23. Q24. Q25. income statement (or) statement of earnings (or) statement of operations revenues expenses operating revenues sales operating expenses nonoperating revenues gains nonoperating expenses losses comparative income statement interim income statements earnings per share (or) EPS multiple step single step gross profit (or) gross margin operating income (or) income from operations accrual method of accounting (or) accrual basis of accounting SG&A (or) selling, general and administrative comprehensive income other comprehensive income publicly-traded extraordinary item calendar year fiscal year For personal use by the original purchaser only. Copyright AccountingCoach.com. 7
Terms/Answers Q26. Q27. Q28. Q29. Q30. Q31. Q32. Q33. Q34. Q35. Q36. Q37. matching principle cost of goods sold (or) cost of sales period of time (or) time interval GAAP (or) generally accepted accounting principles (or) US GAAP FASB (or) Financial Accounting Standards Board SEC (or) Securities and Exchange Commission materiality depreciation expense common-size income statement notes to the financial statements (or) footnotes LIFO (or) last in, first out FIFO (or) first in, first out For personal use by the original purchaser only. Copyright AccountingCoach.com. 8