Chapter 3 Income Statement, Related Information, and Revenue Recognition - Vocabulary Flashcards

Vocabulary-style flashcards covering key concepts from Chapter 3: income statement, unusual items, stockholders’ equity, and revenue recognition.

Income statement

Measures the success of a company’s operations for a period; Revenues (gains) minus Expenses (losses) = Net Income.

Revenues

Inflows or other enhancements of assets from delivering or producing goods, rendering services, or carrying out activities (e.g., sales, fees, interest, dividends, rents).

Expenses

Outflows or using up of assets or incurrences of liabilities from delivering or producing goods, rendering services, or carrying out activities (e.g., COGS, depreciation, interest, rent, salaries, taxes).

Gains

Increases in equity from transactions and other events affecting an entity, excluding revenues or investments by owners.

Losses

Decreases in equity from transactions and other events affecting an entity, excluding expenses or distributions to owners.

Net income

The bottom-line profit; revenues minus expenses; earnings available to shareholders.

Multistep income statement

An income statement that separates operating and non-operating activities and highlights subtotals like gross profit and income from operations.

Gross profit

Net sales minus cost of goods sold; measures merchandising profitability.

Operating expenses

Selling and general and administrative expenses (e.g., salaries, depreciation, advertising, utilities).

Income from operations

Profit from core business activities; gross profit minus operating expenses.

Non-operating items

Revenues and expenses not related to the company’s main operations (e.g., dividend revenue, investment income, interest income, rent revenue).

Unusual and infrequent gains and losses

Gains or losses with a high degree of abnormality and not reasonably expected to recur in the foreseeable future.

Discontinued operations

Reporting of results from a component eliminated due to strategic shift; presented net of tax after income from continuing operations.

Other comprehensive income (OCI)

Gains and losses that bypass net income but affect stockholders’ equity; includes items like unrealized gains/losses.

Comprehensive income

All changes in equity during a period except investments by owners and distributions to owners; includes net income and OCI.

Single-step income statement

Income statement format that groups all revenues and expenses in one step, with no operating/non-operating subtotals.

Stockholders’ equity

Owners’ claims on the company, including common stock, retained earnings, accumulated OCI, and treasury stock.

Retained earnings

Accumulated net income minus dividends and adjustments; increases with net income and certain accounting changes; decreases with losses and dividends.

Intraperiod tax allocation

Allocation of tax within a period to continuing operations, discontinued operations, and other components; tax follows income.

Revenue recognition principle

Recognize revenue when a performance obligation is satisfied and control transfers to the customer.

Five-step revenue recognition model

Identify contracts, identify performance obligations, determine transaction price, allocate price, recognize revenue when obligations are satisfied.

Transaction price

Amount of consideration a company expects to receive from a customer for goods or services.

Performance obligation

Promise in a contract to transfer a good or service to the customer; may be satisfied at a point in time or over time.

Control indicators

Right to payment, transfer of legal title, transfer of possession, customer risk/rewards, and customer acceptance indicating transfer of control.

Standalone selling price

Price at which a good or service would be sold separately; used to allocate transaction price among obligations.

Non-GAAP reporting

Presentation of adjusted financial measures that exclude certain items; controversial because it may mislead about operating performance.

Earnings per share (EPS)

Net income available to common shareholders divided by the weighted-average number of common shares outstanding.

Weighted-average shares

Average number of common shares outstanding during the period, weighted by the portion of the period they were outstanding.