BACC330 - Chapter 4 - Income Statement and Related Information - Material

School of Business
Department of Accounting
Intermediate Financial Accounting I - BACC330

Chapter 4 |
Income statement and Related Information
1
Objective 1: Elements of the Income Statement
Objective 2: Sections in the Multiple-Step Income
Statement
Objective 3: The Single-Step Income Statement
Objective 4: Reporting Various Income Items

• Section 4.1: Reporting Unusual and Infrequent Gains and losses
• Section 4.2: Reporting Discontinued Operations
Objective 5: Retained Earnings Statement

2
Objective 1: Elements of the Income Statement
3
4
Objective 2: Sections in the Multiple-Step Income Statement
5
This format is often referred to as the MULTIPLE-STEP INCOME STATEMENT
Companies:
• Report all revenues, gains, expenses, and losses on the income statement. This statement separates operating transactions
from non-operating transactions, and matches costs and expenses with related revenues
• Present non-operating revenues, gains, expenses, and losses in a separate section, before income taxes and income from
operations
• Report discontinued operations as a separate element in the income statement
6
Example of a Multiple
Step Income Statement
7
Objective 3: The Single-Step Income Statement
8
The single-step income statement consists of just two groupings:
• Revenues
• Expenses
Expenses are deducted from revenues to arrive at net income or loss, hence the expression
“single-step”
Total Revenues – Total Expenses = Net Income
9
Example of a Single Step Income Statement
10
Single Step Multiple Step
Simple and concise Detailed
More information through

Better understood by users segregation of operating and non-
operating items
No priority of one revenue over Expenses are matched with related

the other revenues
11
Objective 4: Reporting Various Income Items
12
Section 4.1: Reporting Unusual and Infrequent Gains and Losses
Companies that have unusual or infrequent gains and losses or both are required to disclose this information in the
income statement or in the notes to the financial statements
In addition, additional disclosure is often needed in the notes to the financial statements so that the users of the
income statement understand the effect of these gains or losses on net income and future cash flows
These gains or losses are defined as follows:

Unusual Infrequency of occurrence
High degree of abnormality and of a type Type of transaction that is not reasonably
clearly unrelated to, or only incidentally expected to recur in the foreseeable future,
related to, the ordinary and typical activities taking into account the environment in which
of the company, taking into account the the company operates
environment in which it operates
13
Common types of unusual or infrequent gains and losses or both are as follows:
• Losses on write-down (impairment) of receivables; inventories; property, plant, and

equipment; goodwill or other intangible assets
• Restructuring charges
• Other gains and losses from sale or abandonment of property, plant and equipment
• Effects of a strike, including those against competitors and major suppliers
• Gains and losses on extinguishment (redemption) of debt obligations
• Gains and losses related to casualties such as fires, floods, and earthquakes
• Gains or losses on sale of investment securities
As indicated earlier, revenues and expenses, other revenues and gains, and other expenses and losses should
be reported as part of income before income taxes
=> GAINS AND LOSSES FROM UNUSUAL OR INFREQUENT GAINS OR LOSSES OR BOTH are
NOT reported NET OF TAX
14
Section 4.2: Reporting Discontinued Operations
A discontinued operation occurs when two things happen:
A company eliminates the results of The elimination of a component that

operations of a component of the represents a strategic shift, having a
business major effect on the company’s operations
and financial results
A component comprises operations and
cash flows that can be clearly A strategic shift generally includes the
distinguished, operationally and for disposal of:
financial reporting purposes • a major line of business
• a major geographical area
• a major equity method investment
15
Companies report as discontinued operations (in a separate income statement category):
• the results of operations of a component that has been or will be disposed of separately from continuing operations
• the gain or loss from disposal of a component of a business
The effects of DISCONTINUED OPERATIONS are reported NET OF TAX as a separate category, AFTER continuing
operations
16
Example of a Multiple
Step Income Statement
including Discontinued
Operations
17
To solve in the Book
BE 4-2, 4-3, 4-5
E 4-7, 4-8
18
Objective 5: Retained Earnings Statement
19
• Net income increases retained earnings
• Net loss decreases retained earnings
• Both cash dividends and stock dividends decrease retained earnings
• Changes in accounting principles (generally) and prior period adjustments may increase or decrease retained earnings
(Companies charge or credit these adjustments (net of tax) to the opening balance of retained earnings)
Demonstration Problem
20
To solve in the Book
BE 4-9, 4-10
E 4-9
P4-1
21

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School of Business

Intermediate Financial Accounting I - BACC330

Objective 4: Reporting Various Income Items

Objective 5: Retained Earnings Statement

More information through

No priority of one revenue over Expenses are matched with related

These gains or losses are defined as follows:

• Losses on write-down (impairment) of receivables; inventories; property, plant, and

A discontinued operation occurs when two things happen:

A company eliminates the results of The elimination of a component that

BE 4-2, 4-3, 4-5

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