Income Statement Presentation May 20, 2009 Intermediate Accounting 303 Team 3: Ryan McKay Cheer Cheng Kristen Jeffries Dr. Kirch Acct 303

 Attributed to FASB Statement of accounting concept 5 ¶ 30:51  AKA Earnings Statement  Discloses changes to the company including:  Causes of changes to assets and liabilities  Results of major or ongoing operations  Results of the company’s transactions

 Uses of the Income Statement  Performance report for stated period.  Used to analyze future performance as well (5 ¶ 36)  Considers risk and financial standing of the company in its current period  Limitations of an Income Statement  The Net income reported is a best “estimation”  Takes into account several assumptions and considerations  Net income can be altered by different accounting methods  Example: Enron : Mark-to-Market

 Single Step Income Statement  Expenses are deducted from revenue to get net income  Not the best form to use  Gives a very rough estimate  Very easy to use and simple

 Multi-Step Income Statement  Operating Section  Non-Section  Income Tax  Discontinued Operations  Extraordinary Items  Discloses Earning Per Share

CK, Inc. Income Statement For the Year Ended December 31, 2008 Sales $ 400,000 Cost of Goods Sold 221,000 Gross Margin 179,000 Operating Expenses Wage Expense $ 39,000 Rent Expense 48,000 Advertising Expense12,000 Depreciation Expense 8,950 Bad Debt Expense 3,490 Insurance Expense 1,200 Total Operating Expenses 112,640 Income Before Other Items, Other Revenue and Expenses, and Taxes 66,360 Other Items Affecting Operating Income Gain on Sale of Fixed Assets 1,000 Income From Operations 67,360 Other Revenues & Interest Expense (10,400) Income Before Taxes 77,760 Tax Expense 9,240 Net Income $ 68,520 Earnings per Share $ 3.70

 Condensed Income Statement  Includes only the total expense in groups  Uses supplementary schedules to support the reconciliation of the expenses  Can be presented in various forms

 Irregular Items affecting an Income Statement  Discontinued Operations  Extraordinary Items  Unusual gains and/or losses

 Disclosure requirement-Items affecting earnings  Must state income tax  Change in accounting principles  Correction of previous errors