Lecture Issues in financial accounting – Lecture 6: Practical issues related to income statement

In this chapter, the following content will be discussed: Briefly describe how net income is used and why it is considered so important, define and distinguish ten key concepts referred to as the elements of the financial statements. | Practical Issues related to Income Statement PART II: Corporate Accounting Concepts and Issues Lecture 06 Understand the uses and limitations of an income statement. Prepare a single-step income statement. Prepare a multiple-step income statement. Explain how to report irregular items. Explain intraperiod tax allocation. Identify where to report earnings per share information. Prepare a retained earnings statement. Explain how to report other comprehensive income. Learning Objectives Elements Single-step Multiple-step Condensed income statements Income Statement Format of the Income Statement Reporting Irregular Items Special Reporting Issues Usefulness Limitations Quality of Earnings Discontinued operations Extraordinary items Unusual gains and losses Changes in accounting principles Changes in estimates Corrections of errors Intraperiod tax allocation Earnings per share Retained earnings statement Comprehensive income Income Statement and Related Information Evaluate past . | Practical Issues related to Income Statement PART II: Corporate Accounting Concepts and Issues Lecture 06 Understand the uses and limitations of an income statement. Prepare a single-step income statement. Prepare a multiple-step income statement. Explain how to report irregular items. Explain intraperiod tax allocation. Identify where to report earnings per share information. Prepare a retained earnings statement. Explain how to report other comprehensive income. Learning Objectives Elements Single-step Multiple-step Condensed income statements Income Statement Format of the Income Statement Reporting Irregular Items Special Reporting Issues Usefulness Limitations Quality of Earnings Discontinued operations Extraordinary items Unusual gains and losses Changes in accounting principles Changes in estimates Corrections of errors Intraperiod tax allocation Earnings per share Retained earnings statement Comprehensive income Income Statement and Related Information Evaluate past performance. Income Statement LO 1 Understand the uses and limitations of an income statement. Help assess the risk or uncertainty of achieving future cash flows. Predicting future performance. Usefulness Income Statement Limitations LO 1 Understand the uses and limitations of an income statement. Companies omit items that cannot be measured reliably. Income is affected by the accounting methods employed. Income measurement involves judgment. Companies have incentives to manage income to meet or beat Wall Street expectations, so that market price of stock increases and value of stock options increase. Income Statement LO 1 Understand the uses and limitations of an income statement. Quality of earnings is reduced if earnings management results in information that is less useful for predicting future earnings and cash flows. Quality of Earnings Manipulating Income and Income Smoothing Two ways to manipulate income: Income shifting Income statement classification “Most executives prefer to report .

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