Income Statement

Question 1

What’s the primary difference between expenses and losses?

Answer 1

-Expenses provide benefit to the firm while losses do not

Question 2

What are exceptions to the All Inclusive Income Statement?

Answer 2

• Prior period adjustments which are shown on the RE Statement
• Other Comprehensive Income

Question 3

How are retrospective changes in accounting principle treated?

Answer 3

-As direct adjustments to retained earnings

Question 4

How is the income statement divided?

Answer 4

• Into roughly two portions
• Top includes routine items from continuing operations
• Bottom includes items unrelated to continuing operations

Question 5

While GAAP is loose about presentation requirements for top portion of income statement, what is prescribed order for items in bottom portion?

Answer 5

• Income Tax Expense (before tax)
• Income from Continuing Operations
• Income from Discontinued Operations (net of tax)

Question 6

How are freight in and freight out treated?

Answer 6

• Product Cost

- Selling Cost