Understanding Income Statements by Edu Pristine

Author of lecture Understanding Income Statements

Edu Pristine

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... the income statement and alternative presentation formats of ...

... Net Revenue: Income statement is also known as: Statement of operations, statement of earnings, profit and lossstatement (P&L). ...

... By function: Manufacturing expenses, selling, general and administrative expenses. By Nature: Depreciation, research ...

... normal business activities. For ex. gain (loss) on sale of fixed ...

... 1. Single-step: Revenue less expenses: All items are grouped together as ...

... 2. Multi-step: Shows detailed presentation including calculation of gross profit, operating profit and net income. Gross profit/loss: Revenue  cost of good sold: Operating profit/loss (EBIT): Gross profit. Other operating expenses ...

... Which of the following best describes an income statement? A. An income statement reports changes over a period of time in component accounts that comprise the ownership of a firm. B. An income statement summarizes the financial ...

... examples of expenses classified by nature or classified by function in the income statement? ...

... Dividend paid = $100,000, tax rate = 20%. A. Gross profit = $500,000, operating profit = $350,000, net profit = $240,000. B. Gross profit = $350,000, operating profit = $500,000, net profit = $160,000. C. Gross profit = $500,000, operating profit = $350,000, net profit = $160,000 ...

... A. Gross Profit = Revenue - COGS = $2,000,000-$1,500,000 = $500,000. Operating profit = gross profit selling and admin expense = $500,000 ...

... Guidlines for revenue recognition: Following conditions must be satisfied: 1. Transfer of ownership 's risk and rewards to buyer. 2. Reliable measurement of revenues 3. Reliable measurement of associated costs. ...

... are SEC criteria to recognize revenue. There is evidence of an arrangement between the buyer and seller. The product has been delivered or the service has been rendered. The price is determined or determinable. ...

... Revenue is usually recognized at delivery using the revenue recognition criteria previously discussed. ...

... Percentage of completion method: Appropriate when the project's cost and revenue can be reliably estimated. Amount of revenue to be recognized = Total contract value x total cost incurred to ...

... of a project y measured or the project is short-term. Revenue, expense and profit are recognized only when the contract is completed. But, if a loss is expected, ...

... Cash flows is same under both methods. Compared to completed contract method, percentage of completion method: Recognizes revenue early hence it is more aggressive, requires estimation of total costs hence subjectivity is involved, provides smoother ...

... recognition can be of following types: If collectability is certain: Recognize revenue at time of sale using normal revenue recognition criteria. If collect ability can't be reasonably estimated: Recognize revenue using installment method. If collect ability is highly uncertain: ...

... Book profits after recovering costs. Profit is recognized when cash collected exceeds costs (costs + interest) incurred. ...

... IFRS guideless for long-term contracts: If the firm cannot reliably measure the outcome of the project, revenue is recognized to the ...

...  Risks and rewards of ownership are not transferred (as seller remains involved in the property). Buyers acquire a vested interest in the assets on the date which is different from the ...

... Two parties exchange goods or services without exchanging cash. Issues like fair value of transaction arises. Dealt differently in US GAAP and IFRS ...

... IFRS recognized revenue at fair value based on similar non barter transactions with unrelated parties, e.g. advertising space on internet companies. Note: Give special attention to difference in treatments given by US GAAP and IFRS to various transactions ...

... An ecommerce company selling goods on portal what should be revenue? Equal to total value ...

... Entity bears inventory risk and customer credit risks related to payments. Can choose suppliers with reasonable freedom to establish prices, ...

... therwise, revenue should be recognized on net basis meaning equal to commissions, e.g.: Agent selling flight tickets of Air India. Implications for financial analysis: Firms disclose revenue recognition policies at financial statement ...

... A. Measurable and received, B. Measurable and earned, C. Realizable and ...

... C. Allocates many transactions that produce cash flows to time periods ...

... in which the cash flows occur. Accrual accounting principles are the decision rules that state when to recognize the revenue and expense consequences of cash flows and other events. ...

... XYZ company has received a contract of completing a Dam, work for which is expected to finish in 5 years. The expect ed revenue and associated cost of the project are $2,000,000 and $1,500,000 ...

... recognition will affect its profitability at the end of the project, keeping other things constant? A. Large increase in profit, B. No impact, ...

... Large increase in profit, completed contract method recognize a revenue once the work is finished, whereas percentage of completion method recognize revenue as per the percentage of work completed in a given accounting period. Hence shifting from percentage ...

... is significant probability of cost overruns and construction delays, one should ...

... or collectability of future cash flows? A. Completed contract method, B. Percentage ...

... A. It is measurable and earned. B. It is realizable and received. C. It is realizable and ...

... A. Percentage of completion method ...

... revenue recognition method for long term contracts whereas cost recovery method and installment method are used for installment ...