Income from Continuing Operations
1. Revenues
2. Expenses
3. Gains/Losses
4. Income Tax Expense
Revenues
Inflows resulting from providing goods/services
Expenses
Outflows incurred in generating revenues
Gains/Losses
Inc/Dec in equity from peripheral/incidental transacations
Income Tax Expense
Separate Item
Operating Income
Rev/Exp related to principal revenue-generating activities
Nonoperating Income
Gains/Losses & Rev/Exp related to peripheral or incidental activities
Earnings Quality
Ability of reported earnings to predict future earnings
Manipulate Income
1. Income Shifting
2. Income Statement Classification
Restructuring Costs
Shutdown or relocation of facilities or downsizing of operations
Goodwill Impairment & Long-Lived asset impariment
impairment losses or changes
Nonoperating income/earnings quality
gains/losses generated from sale of investments can inflate/deflate current earnings
Separately Reported Items
1. Discountinued Operations
2. Extraordinary Items
Net of taxes
Reporting for COmponents Sold
Gain/Loss on disposal of assets
Reporting for Components Held for Sale
"impairement loss" if
carrying value>(fair value-cost to sell)
Extraordinary Items
1. Unusual in nature
2. Infrequent in occurrence
net of related taxes
Unusual/Infrequent Items
if not BOTH
included as separate items in continuing operations
Accounting Principle Change
One GAAP method to another
- LIFO to FIFO
Accounting Estimate Change
Revision of estimate after new information
- Revision of previous estimate
2. use new estimate in current and future
3. depreciation, amortization, depletion
Reporting Entity
Fin. Statement Prep for other accounting entity
Accounting Errors
(same year
Reverse original entry and record appropriately
Accounting Errors
(subsequent years)
- record prior period adjustment to beginning RE balance of SE
- previous incorrect fin. statements retrospectively restated to reflect correction
Earnings Per Share Ratio
Amount of income earned by a company expressed on a per share basis
BASIC: (NI-Pref Div)/(weighted avg # of common shares)
Statement of Cash Flows
-Provides relecant information about cash receipts/disbursements
-helps investors/creditors asses
1. future net cash flows
2. liquidity
3. lt solvency
-required for each income stmnt period reported
Operating Activities
CASH FLOWS
INFLOWS
1. sales
2. int/div received
OUTFLOWS
1. inventory purchase
2. salaries, wages, op expenses
3. debt interest
4. income taxes
Direct Method
Reports cash effects of each operating activity
Indirect Method
Starts with accrual NI and converts to cash basis
Investing Adtivities
CASH FLOWS
INFLOWS
1. sale of long-lived asset
2. sale of investment securities
3. collection of nontrade receivables
OUTFLOWS
1. long-lived asset purchase
2. purchase of investment
3. loans to other entities
Financing Activities
CASH FLOWS
INFLOWS
1. sale of shares to owners
2. borrowing from creditors
OUTLFOWS
1. owners in the form of div
2. owners for reacquisition of shares
3. creditors as repayment of debt
