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Accounting: What the Numbers Mean, 5/e

David H. Marshall, Millikin University
Wayne W. McManus, International College of the Cayman Islands
Daniel F. Viele, Webster University

The Income Statement and the Statement of Cash Flows

Chapter 9 Learning Objectives

After studying this chapter, you should understand:

1.

What revenue is and what the two criteria are that permit revenue recognition.

2.

How cost of goods sold is determined under both perpetual and periodic inventory accounting systems.

3.

The significance of gross profit (or gross margin) and how the gross profit (or gross margin) ratio is calculated and used.

4.

The principal categories and components of "other operating expenses" and how these items are reported on the income statement.

5.

What "income from operations" includes and why this income statement subtotal is significant to managers and financial analysts.

6.

The components of the earnings per share calculation and the reasons for some of the refinements made in that calculation.

7.

The alternative income statement presentation models.

8.

The unusual items that may appear on the income statement, including

Discontinued operations.
Extraordinary items.
Minority interest in earnings of subsidiaries.
Cumulative effect of a change in accounting principle

9.

The purpose and general format of the statement of cash flows.

10.

The difference between the direct and indirect methods of presenting cash flows from operating activities.

11.

Why the statement of cash flows is significant to financial analysts and investors who rely on the financial statements for much of their evaluative data.

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