Income Statement

Chapter
Financial Statements
Objectives of Financial Reporting
 Provide useful information to those who must
make financial decisions
 Balance sheet—assets, liabilities, and equity
 Income statement—revenues and expenses
 Statement of cash flows—cash flows from
operating, investing, and financing activities
 Notes—accounting policies
The Income Statement
 Summarizes the results of operations of an entity
for a period of time
 Reports the excess of revenue over expense—that
is the net income
 Single-step income statement: expenses are added
together and subtracted from all revenues in single
step
 Multiple-step income statement: shows
classifications of revenues and expenses as well as
important subtotals
LO 5
 Format:
 Single Step: List all revenues and subtotal
List all expenses and subtotal

 Total revenues less total expenses = net income
 Multi Step: Sales

- CGS___________
= Gross Profit
- Operating expense
= Income from operations
+ - Other revenues and expenses
= Income before tax expense
- Tax expense
= Income from continuing operations
+- Discontinued operations
+- Extraordinary items

= Net Income
Example 2.6—Preparing a Single-Step
Income Statement
Example 2.7—Preparing a Multiple-
Step Income Statement
Classified Balance Sheet
 Separates both assets and liabilities into current
and noncurrent
 Current assets
 Noncurrent assets
 Current liabilities
 Long-term liabilities
 Stockholders’ equity
The Format of the Balance Sheet:
Assets: Liabilities:
Current: Current:
Cash Accounts Payable
Accounts Receivable Accrued Expenses (Liabilities)
Inventory Unearned Revenues
Prepaid Expenses “_______” Payables
Short-term Investments Income Taxes Payable
Short-term Notes Receivable Short-term Notes Payable
Supplies Current Portion of Long-term Debt
Total Current Assets Total Current Liabilities
Long-term Investments Bonds Payable

Long-term Notes Receivable Long-term Debt
Long term Notes Payable
Total Liabilities
Property/Plant/Equipment (P/P/E):
Land
Building
Equipment
Less Accumulated Depreciation
Net P/P/E Stockholder’s Equity:
Intangible Assets Common Stock

Goodwill Additional Paid in Capital
Patents, net Retained Earnings
Trademarks, net less Treasury Stock
Copyrights, net
Total Intangible Assets Total Stockholder’s Equity
Other Assets
Total Assets must = Total Liabilities & Stockholder’s Equity

Current Assets
 Expected to be realized in cash, sold or
consumed within one year or operating cycle
 Example: cash, marketable securities, accounts
receivable, merchandise inventory, prepaid
insurance, store supplies, etc.
Example—Current Assets Section
Noncurrent or Long-term Assets
 Other than the definition of current asset
 Three common categories:
 Investments: securities not expected to be sold
within the next year
 Property, plant, and equipment: tangible,
productive assets used in the operation of a
business
 Intangibles: lack physical substance
• Example: trademarks, copyrights, franchise rights, patents,
and goodwill
Example—Noncurrent or Long-term
Assets Section
Current Liabilities
 Obligation that will be satisfied within one year
or an operating cycle
 Example: accounts payable, salaries and wages
payable, income taxes payable, interest payable,
bank loan payable
Example—Current Liabilities Section
Long-Term Liabilities
 Obligation that will not bepaid within the next
year or an operating cycle, whichever is longer
 Example: notes payable and bonds payable
 Example—Long-term Liabilities Section
Stockholders’ Equity
 Owners claims on assets of the business
 Arise from two sources:
 Contributed capital
 Capital stock: owner’s investments in business
 Paid-in capital in excess of par value
 Retained earnings: accumulated earnings, or net

income, of the business since its inception less all
dividends paid during that time
Example—Stockholders’ Equity Section
Example 2-4 Preparing a Classified
Balance Sheet
Example 2-4 Preparing a Classified
Balance Sheet (continued)
End of Chapter

Income Statement

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Chapter

 Multi Step: Sales

Long-term Investments Bonds Payable

Intangible Assets Common Stock

Total Assets must = Total Liabilities & Stockholder’s Equity

 Retained earnings: accumulated earnings, or net

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