Income Statement
The income statement reports an entity's revenues, expenses, gains, and losses over a period of time, resulting in net income or net loss.
Explanation
The income statement can be presented in single-step format (all revenues minus all expenses) or multi-step format (separating operating and non-operating items with subtotals for gross profit and operating income). Discontinued operations are reported separately, net of tax, below income from continuing operations.
Key concepts include the distinction between operating and non-operating items, the treatment of unusual or infrequent items within continuing operations, and the presentation of earnings per share. Changes in accounting principles are generally applied retrospectively, while changes in accounting estimates are applied prospectively.
Key Points
- •Multi-step format shows gross profit and operating income subtotals
- •Discontinued operations reported separately, net of tax
- •EPS required on the face of the income statement for public companies
- •Changes in estimates are prospective; changes in principles are generally retrospective
Exam Tip
Know the difference between a change in accounting principle (retrospective) and a change in estimate (prospective). Discontinued operations criteria under ASC 205-20 are also tested.
Frequently Asked Questions
Related Topics
Balance Sheet (Statement of Financial Position)
The balance sheet reports an entity's assets, liabilities, and equity at a specific point in time, following the fundamental accounting equation: Assets = Liabilities + Equity.
Earnings Per Share (EPS)
Earnings per share (EPS) measures the portion of a company's net income allocated to each outstanding share of common stock, reported as both basic and diluted EPS.
Comprehensive Income
Comprehensive income includes all changes in equity during a period except those from owner transactions, encompassing net income plus other comprehensive income (OCI) items.
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