Intermediate Accounting: Income Statement, OCI, Foreign Currency & Classification

Vocabulary flashcards covering key accounting terms from the lecture on income statements, comprehensive income, foreign currency accounting, and asset/liability classification.

Basic Accounting Equation

Assets = Liabilities + Stockholders’ Equity.

Net Reporting (Net Concept)

Shows only the difference between related revenues and expenses; used for gains and losses reported in non-operating income.

Gross Reporting (Gross Concept)

Separately presents the full amounts of revenue and the related expense (e.g., Sales revenue and COGS).

Single-Step Income Statement

Groups all revenues together and all expenses together with no operating vs. non-operating separation.

Multi-Step Income Statement

Separates operating from non-operating sections and presents Gross Profit, Operating Income, other income/expenses, tax, and Net Income.

Gross Profit

Net Sales minus Cost of Goods Sold (COGS).

Operating Income

Gross Profit minus Operating Expenses.

Income Before Tax

Operating Income plus or minus other income, gains, and losses.

Net Income

Income Before Tax minus Income Tax Expense; excludes OCI items.

Other Comprehensive Income (OCI)

Revenues, expenses, gains, and losses that bypass net income and accumulate in equity; remembered by PUFER.

PUFER

Acronym for common OCI items: Pension adjustments, Unrealized gains/losses on AFS debt securities, Foreign currency translation, Effective cash-flow hedge portion, Revaluation surplus (IFRS).

Retained Earnings

Accumulated net income minus dividends and prior-period adjustments; increases with net income, decreases with losses or dividends.

Prior-Period Adjustment

Correction of an error or retrospective accounting change recorded directly to beginning Retained Earnings, not through net income.

Discontinued Operations

Results of disposing a component representing a major strategic shift; reported net of tax below Income from Continuing Operations.

Operating Results of Discontinued Ops

Income or loss from the component’s regular activity from the period start to disposal date.

Gain or Loss on Disposal

Proceeds minus carrying amount (plus/minus transaction costs) when the component is sold or classified as held-for-sale.

Income from Continuing Operations

Profit from normal ongoing business after tax, presented ‘above the line’ on the income statement.

Above-the-Line Items

Revenues, COGS, operating expenses, non-operating gains/losses, and tax on continuing operations.

Below-the-Line Items

Results of Discontinued Operations, reported net of tax beneath continuing operations.

Comprehensive Income

All changes in equity during a period except those resulting from owner investments or distributions; equals Net Income + OCI.

Accumulated Other Comprehensive Income (AOCI)

Equity account that stores the cumulative balance of OCI items; credit = positive, debit = negative.

Foreign Currency Transaction

Transaction denominated in a currency other than the entity’s functional currency.

Spot Rate

Exchange rate in effect on the transaction or reporting date used for measurement.

Remeasurement (Year-End Adjustment)

Update of monetary items into functional currency using the spot rate at balance-sheet date; resulting gain/loss goes to net income.

Settlement of Foreign Currency Item

Conversion at the spot rate on payment/collection date; difference from carrying amount is another gain or loss in net income.

Monetary Items

Assets or liabilities fixed in terms of currency units (cash, receivables, payables); remeasured each reporting date.

Non-Monetary Items

Assets and liabilities not fixed in currency units (inventory, PP&E); generally not remeasured unless carried at market.

Direct Exchange Quote

Home currency amount per one unit of foreign currency.

Indirect Exchange Quote

Foreign currency amount per one unit of home currency.

Current Asset

Asset expected to be sold, used, or converted to cash within one year or the operating cycle, whichever is longer.

Noncurrent Asset

Asset not expected to be liquidated within one year/operating cycle (e.g., PP&E, long-term investments, intangibles).

Current Liability

Obligation due within one year/operating cycle and expected to be settled with current assets or by creating other current liabilities.

Noncurrent Liability

Obligation not due within one year/operating cycle, such as long-term bonds or notes payable.

Unusual and Infrequent Item

Gain or loss with high abnormality and unlikely recurrence; reported in Income from Continuing Operations.

Selling Expenses

Costs directly related to marketing and delivering goods (advertising, sales salaries, freight-out).

General & Administrative (G&A) Expenses

Costs for overall management and support (officers’ salaries, office rent, accounting and legal fees).

Refundable Payment

Deposit or prepayment expected to be returned; classified as an asset.

Memory Tip: Translate Once, Remeasure Always

Foreign currency transactions are recorded once at the spot rate then remeasured every period until settled.

Memory Tip: Net Income vs. OCI

Net Income = daily operations + realized gains + discontinued ops; OCI = unrealized items, foreign currency, pensions, hedges.