Summary Notes on Income Statement and Balance Sheet Concepts

Income Statement Overview

• Two forms discussed: single-step and multi-step.

• Multistep format preferred for deeper insight.

Components of Multi-Step Income Statement

• Sales: Net sales after returns & discounts.

• Cost of Goods Sold (COGS): Gross profit derived from sales.

• Continuing Operations: Identifies revenues and expenses related to ongoing operations.

• Discontinued Operations: Reported separately, includes any gains or losses.

• Tax Expense: Calculated after determining net income from continuing operations.

Adjustments to Retained Earnings

• Adjustments may be needed for prior periods due to changes in accounting principles or comprehensive income.

• Reported net of tax effects.

Earnings Per Share (EPS)

• Calculated based on outstanding common stock and outlined separately for continuing vs. discontinued items.

Comparison of Income Statement Types

• Single-step provides basic information, while multi-step gives more detailed insights for decision making.

Upcoming Topics

• Focus on balance sheets, cash flow statements, and financial ratios.