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Cover
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 Outline


Income Statement

  1. Revenues
    1. Revenue recognition.
      1. Realized or realizable.
      2. Earned.
    2. Revenue from sales.
      1. Sales returns and allowances.
      2. Net sales.
    3. Revenue from services.
    4. Unusual revenue recognition methods.
      1. Percentage of completion.
  2. Expenses
    1. Expense recognition.
      1. Matching principle, objectivity, and conservatism applied.
    2. Cost of goods sold.
      1. Under perpetual inventory system.
      2. Under periodic inventory system.
      3. Purchases returns and allowances.
  3. Gross Profit or Gross Margin
    1. Expressed as dollar amount and percentage of net sales.
    2. Effect of sales mix.
    3. Use of gross profit ratio to estimate ending inventory and cost of goods sold.
    4. Use of target gross profit ratio to set selling price.
  4. Other Operating Expenses
  5. Income from Operations
  6. Other Income and Expense
    1. Interest income and interest expense.
    2. Other gains and losses.
  7. Income Before Income Taxes and Income Tax Expense
  8. Net Income and Earnings Per Share
    1. Weighted average shares outstanding.
    2. Net income available for common stock.
    3. Basic versus diluted earnings per share.
  9. Summary of Income Statement Presentation Alternatives
    1. Single-step format.
    2. Multiple-step format.
  10. Unusual Items Sometimes Seen on the Income Statement
    1. Discontinued operations.
    2. Extraordinary items.
      1. Reported net of income tax effect.
    3. Minority interest in earnings of subsidiaries.
    4. Cumulative effect of a change in accounting principle.

Statement of Cash Flows

  1. Content and Format of the Statement
    1. Cash providing/using activities.
      1. Operations.
      2. Investing.
      3. Financing.
    2. Net income--the beginning point for cash generated from operations, but adjustments are required for non-cash elements of net income.
      1. Depreciation and amortization expense.
      2. Income tax expense not currently payable.
      3. Gains or losses on property sales.
    3. Changes in other current assets and current liabilities affect cash generated from operating activities.
    4. Summary of investing activities.
    5. Summary of financing activities.
    6. Statement illustrated.
      1. Direct method.
      2. Indirect method.
  2. Interpreting the Statement of Cash Flows
    1. Look at category totals before looking at details.
    2. Operating activities--should generate cash.
    3. Investing activities--usually use less cash than is generated by operating activities.
    4. Financing activities.
      1. Debt transactions--borrowings and repayments.
      2. Capital stock transactions--sale of stock and purchase of treasury stock.
      3. Dividends payments.








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