Purpose of Income Statement
Summarize profit generating activities that occurred during a particular period
net profit or loss during the reporting period
Operating Performance
includes the revenues, expenses, gains and losses that will probably continue in future periods
Income from Continuing Operations
inflows of resources resulting from providing goods or services to customers
Revenue
Outflows of resources incurred while generating revenue
Expenses
Includes revenues and expenses directly related to the principal revenue-generating activities of the company
Operating Income
Includes gains and losses and revenues and expenses related to peripheral or incidental activities of the company
Nonoperating Income
Increases or decreases in equity from peripheral or incidental transactions of an entity
Gains and Losses
shows the amount of income earned by a company expressed on a per share basis
EPS
Basic EPS
Net Income less Preferred Dividends/ Weighted-Avg. Number of Common Shares Outstanding for the Period
Reflects the potential dilution that could occur for companies that have certain securities outstanding that are convertible into common shares or stock options that could create additional common shares if the options were exercised
Diluted EPS
Companies must disclose per share amounts for:
1) Income or loss from continuing operations
2) Each Separately Reported Item
3) Net Income or Loss
refers to the ability of reported earnings to predict a company's future earnings
Earnings Quality
To enhance predictive value, analysts try to separate:
Transitory Earnings from its Permanent Earnings
result from transactions or events that are not likely to occur again in the foreseeable future, or will have a different impact on earnings
Transitory Earnings Effects
Two Major Methods Managers Use To Manipulate Income
Income Shifting
Income Statement Classification
achieved by accelerating or decelerating the recognition of revenues or expenses
Income Shifting
include costs associated with shutdown or relocation of facilities or downsizing of operations
Restructuring Costs
Examples of Transitory Items
Special Items
Discontinued Operations
Extraordinary Items
Attempt by companies to identify the recurring portion of thier income; managers assessment of permanent earnings
Pro-forma Earnings
Comprehensive Income
Net Income + OCI
income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners
Comprehensive Income
includes transactions affecting the net assets of the firm that are considered by FASB to be events outside of management's control
OCI