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23 Cards in this Set

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Income statement
Performance for a period of time; useful in determining profitability, value of investment purposes and credit worthiness.
Presentation order of major components of the income and retained earnings statement (IDEA)

I - Income (or Loss) from Continuing Operations - before tax (include operating. non operating activities and income taxes)

D - Discontinued Operations - net of tax

E - Extraordinary Items - unusual in nature and infrequent in occurrence.

A - Accounting Principle-Cumulative effect of change..reported net of tax on Retained Earnings
I- Income from continuing operations - multiple step income statement
I - Income from continuing operations (gross & net of tax) the multiple step income statement reports operating (core business) revenues and expenses separately from non operating (not core) revenues and expenses and other gains and losses.

Ex. Net sales>cost of goods sold>gross margin>selling expenses>general & admin expenses>depreciation expense>income (loss) from operations then...
Other revenues and gains> interest income>gain on sale of fixed asset>other income>Other expenses & losses>interest expense>loss on sale of fixed asset>income before unusual items and income tax>unusual or infrequent items>loss on sale of available for sale securities>Income before income tax>provision for income taxes>current tax>deferred> Net Income (after tax)
D - Discontinued Operations - exit of disposal activities (net of tax)
assets are no longer depreciated or amortized
D - Discontinued Operations -normal (loss) loss from discontinued operations can consist of an impairment loss, a gain/loss from actual operations, and gain/loss on disposal included in the period in which they occurred.

displayed in the income statement after income from Continuing operation.
Held for sale (4 criteria)
A componet of a business or diposal group is classified as Held for Sale in the period in which the 4 the critera:

1. Plan
2. Available
3. Advertised
4. Unlike to Review
Discontinued Operation calculation

Losing $200k per month
4/30 Yr1 decision to dispose
4/30 Yr1 carrying value $4 mil
4/30 Yr1 fair value $2.2 mil
6/30 Yr2 sold for 2 mil
Yr2 continued losing $200k per month
Tax rate 40%

What year would held for sale and impairment loss be recognized?

What is the impairment loss?

Loss from continuing operations Yr1 and Yr2?

Total loss from discontinued operations (after tax) for Yr 1 and Yr 2?
Held for Sale Yr1 and Impairment Yr1.

Impairment loss: $1,800,000

Loss from continuing operation: Yr1 $2,400,000 = 200,000 x 12 and Yr2 $1,200,000 = $200,000 x 6

Loss from discontinued operations : Yr 1 $2,520,000 = (1,800,000 +2,400,000) x (1-40%) and Yr 2 $840,000 = (1,200,000 + $200,000) x (1-40%)
Extraordinary Items - net of tax

(IFRS - prohibits)
Extraordinary items are transactions that are material in nature, significantly differerent from the typical business activities, not expected to recur in the forseeable future. (usual and infrequent)

disclosed in the income statement after discontinued operations.
Nonextraordinary items - gross, before tax
Separate componet of continuing operations (5)

1. gain/loss from sale or abandonment of property used in the business
2. Large writedowns or writeoffs
3. Gain/Loss from foreign currency transaction or translation
4. Losses from major strike by employees
5. Long term debt extinquishments (mgmt strategy)
Accounting Changes and Error Corrections (3) - Retained Earnings Statement (cumulative effect of change in accounting)
Accounting changes and error corrections. Changes in accounting:

1. Estimate - (prosective) effects current and future, not acct principle such as LIFO to FIFO depreciation.

2. Principle - (retro) - must be a justified change from one accounting principle to another acceptable principles.such as completed contract method vs. percentage of completion

3. Change in Accounting Entity - restate - when entity being reported on has changed composition. such as consolidated statement to single statement.

4. Error Corrections - restate - prior period adjustment. adjust beginning retained
Statement of Retained Earnings -
Beginning balance>Prior period adjustment> Add: income tax benefit> cumulative effect of accounting change> Less: income tax effect>Beginning balance> Add net income> Less Dividends>Cash dividend declared on common stock> Ending Balance.
Comprehensive Income - non owner transactions
Comprehensive Income is the change in equity (net assets) of a business enterprise during a period from nonowner transactions.

Net Income: Per Income Statement (IDE) + Other comprehensive income (PUFER)
PUFER- direct to equity

P- Pension Adjustments
U- Unrealized Gains/Losses
F- Foriegn Currency Items
E- Effective Portion of Cash Flow Hedges

(IFRS only)
R- Revaluation Suplus
Reclassification Adjustments -Avoids double counting
Move other comprehensive income items from accumulated other comprehensive income to the income statement. They may be displayed on the face of the financials or the notes.
Financial Statement Reporting my be presented in 3 approachs
1. Single Statement Approach - start with revenue>expenses>income before income taxes>income tax (%)> net income>Other comprehensive income, net of income tax>Pension net loss>Unrealized holding gains> foreign currency items>Comprehensive income.

2. Two statement approach- start with Net Income + PUF

3. Component within statement of Owner's Equity- starts with beginning and ending balances. it also includes retained earnings information.
Notes to Financial Stmt
Both IFRS and GAAP require a description of all significant policies be included as an intregal part of the financial statements.
Summary of Significant Accounting PoliciesIdentify and describe:
measurement bases used in principles/ methods, criteria, policies, pricing.
Remaining notes to the Financial Statements

Information relevant to decision makers. Such as pension plan description and Contractual obligations.
Interim Financial reporting - Quarterly Financials

- Not required under US GAAP or IFRS.
- Matching of revenue and expenses by quarter and not by year.
-timeliness over reliablitity
Segment Reporting -
provide informaton on the business activities and the economic environment of a conunty.

Publically traded - big conglumerate with lots of products sold in differ geo areas.
"better understand the whole in parts.
Disclosures of all Public Enterprises (Publically Traded)

Segmented by Operating segments, Products and Service, Geographic areas, Major customers
Intercompany Transactions not eliminated for reporting.

transactions between the segments such as consolidations between parent companies and subsidiary
Qualitative Threshold for Reportable Segments.

10% test for revenue, profit & loss and assets.

75% reporting sufficiency test for consolidated revenue.
Development Stage enterprises (GAAP) - an operation has not yet commenced or principal operation have generated an insignificant amount of revenue (or loss)
Fair Value measurement and disclosures
Fair value is the price to sell an asset of transfer a liability in a orderly transaction between market participants at the measurement date.
Most areas require fair value disclosures, separate rules apply to..
Inventory pricing which is lower cost of market,

Present value lease classification and measurement.
Orderly fair value transactions can not be a forced transaction such as a liquidation.
-Fair value Market participants are independent buyers and sellers - and not related parties.

Use Most Advantageous Market if no principle market.

Highest and Best Use - Use or Exchange
Fair Value Valuation Technigues (3)

1. Market Approach - identical and comparable
2. Income Approach - cash flows or earnings
3. Cost Approach - replacement cost
Fair Value Hierachy of Inputs (3)
Level 1 Most Reliable; Identical and Active Markets
Level 2 Similar/Active > Identical/ Not Active Market
Level 3 Not quite as reliable
Exceptions to Fair Value measurement (3)

1. It is not practicale to measure
2. Can not be reasonably determined
3. Can not be measured with sufficient reliability.