Intermediate Accounting: Income Statement, Related Information, and Revenue Recognition

Flashcards covering key concepts from Intermediate Accounting Chapter 3 on Income Statement, Related Information, and Revenue Recognition, including uses, limitations, elements, special items, stockholders' equity, and accounting changes, estimates, and errors.

The income statement measures the success of a company’s operations for a period of time and is used to evaluate profitability, investment value, and __.

credit-worthiness

The basic format of an income statement is Revenues (gains) – Expenses (losses) = __.

Net Income

An income statement provides a basis for predicting __ performance.

future

One limitation of the income statement is that numbers are affected by the __ methods employed.

accounting

Income measurement always involves __.

judgment

__ are inflows or other enhancements of assets or settlements of liabilities from delivering goods, rendering services, or carrying out other activities.

Revenues

__ are outflows or other using-up of assets or incurrences of liabilities from delivering goods, rendering services, or carrying out other activities.

Expenses

__ are increases in equity from events affecting an entity, except those from revenues or investments by owners.

Gains

__ are decreases in equity from events affecting an entity, except those from expenses or distributions to owners.

Losses

A __ income statement separates operating transactions from nonoperating transactions.

multiple-step

__ represents the merchandising profit of a company after deducting the cost of goods sold from net sales.

Gross profit

__ highlights the difference between a company's regular operations and non-recurring or incidental activities.

Income from operations

Non-operating items on the income statement are revenues, expenses, gains, and losses that are unrelated to the company’s __ operations.

main line of

An unusual item is characterized by a high degree of __ and being unrelated to ordinary and typical company activities.

abnormality

__ is a significant business indicator that measures the dollars earned by each share of common stock and must be disclosed on the income statement.

Earnings per Share

A __ income statement does not imply that one type of revenue or expense item has priority over another.

single-step

Two special items that are highlighted in the income statement to help users determine long-run earning power are __ and other comprehensive income.

discontinued operations

Discontinued operations are reported when a company eliminates a component that represents a strategic shift and has a __ effect on its operations and financial results.

major

Discontinued operations amounts are reported "__."

net of tax

Discontinued operations are reported after “__.”

Income from continuing operations

__ is the allocation of tax within a period, helping users understand the impact of income taxes on various components of net income.

Intraperiod tax allocation

__ includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Comprehensive income

Gains and losses that bypass net income but affect stockholders’ equity are referred to as __.

other comprehensive income (OCI)

Companies can report comprehensive income using either a single continuous statement or __ separate, but consecutive statements.

two

Retained Earnings are increased by Net Income, changes in accounting principle, and __.

prior period adjustments

Retained Earnings are decreased by Net Loss, Dividends, changes in accounting principle, and __.

prior period adjustments

Restrictions of retained earnings are disclosed either in the notes to the financial statements or in the stockholders’ equity section as __.

Appropriated Retained Earnings

The Statement of Stockholders’ Equity reports changes in each stockholders’ equity account and total stockholders' equity for the __.

period

A change in accounting principle requires a __ adjustment to recast prior years’ statements.

retrospective

When there's a change in accounting principle, a cumulative effect adjustment is made to the beginning balance of __.

retained earnings

Changes in accounting estimates are accounted for in the __ of change or the period of change and future periods if the change affects both.

period

Changes in accounting estimates are __ handled retrospectively.

not

Corrections of errors are treated as __ adjustments in the year they are discovered.

prior period

Corrections of errors are reported as an adjustment to the beginning balance of __.

retained earnings

A change in accounting principle requires prior years’ income statements to be recast on the same basis as the newly adopted principle and are shown __.

net of tax

Changes in accounting estimates are shown only in the affected accounts in current and future periods and are __ shown net of tax.

not

Corrections of errors are treated as prior period adjustments and require prior years’ income statements to be restated, and are shown __.

net of tax

A company changing its computation for bad debt expense from 2% to 3% of receivables is an example of a change in __ and is treated in the current period.

estimate

Forgetting to record depreciation expense in a prior year is considered an __ requiring restatement of prior-year income statements if material.

error

Extending the estimated useful life of equipment is an example of a change in __.

estimate

Changing from the average-cost method to the FIFO method for inventory costing is an example of a change in __ and requires prior periods to be recast.

accounting principle