Income Statement and Financial Accounting Vocabulary

Vocabulary terms and definitions covering income statement preparation, earnings quality, restructuring expenses, and non-GAAP reporting from the lecture.

SG&A

Selling, General, and Administrative expenses.

DISCOPS

Discontinued operations.

Matching Principle

An accounting principle aimed at matching revenues with their related expenses in the same period as much as possible.

Gains and Losses

Increases or decreases from transactions not classified as revenue or expenses and not involving owners.

Single-Step Income Statement

An income statement format that groups all revenues together and subtracts all expenses to determine income.

Multi-Step Income Statement

An income statement that separately classifies operating and nonoperating items into distinct sections.

Earnings Quality

The ability of reported income to predict a company's future earnings.

Temporary Earnings

Earnings from transactions that are not likely to occur again in the foreseeable future and are likely to have a different impact on future earnings.

Permanent Earnings

Current earnings generated from core, ongoing operations that are expected to recur in future periods.

Income Smoothing

The practice of overestimating expenses to reduce net income in certain periods, then reducing those expense estimates in future periods to manufacture or increase net income.

Big Bath Theory

A strategy where a company experiencing a bad year maximizes its reported losses by accruing extra expenses or reserves so future years appear more profitable.

Classification Shift

Shifting operating expenses into a nonoperating expense classification to report fewer operating expenses and higher operating income.

Restructuring Costs

Costs associated with management's plans to materially change the scope of business operations, recognized in the period of disposal or action.

RIF

An acronym for Reduction in Force, referring to workforce layoffs or staff terminations.

Non-GAAP Earnings

Voluntary financial measures reported by companies that adjust GAAP earnings by excluding specific revenues or expenses, such as restructuring costs or impairment charges.