The Income Statement and

Statement of Cash Flows

Sid Glandon, DBA, CPA

Associate Professor of Accounting

Comprehensive Income
Total

change in equity EXCLUDING

transactions with owners

Other Comprehensive Income

Comprehensive Income
Change in equity as a result of non-owner
transactions
Net income, plus (minus)
Other Comprehensive Income
Unrealized gains/losses
Foreign currency translations

Presentation
Extension of income statement
Statement of comprehensive income
Statement of shareholders equity

Elements of the Income Statement

Operating

income

Revenues
Expenses
Other

income (expense)

Gains
Losses

Multiple-Step Income Statement

Separation

of

Operating activities
Nonoperating activities
Classification

of expenses by functions

matches costs and expenses with related

revenues

Separately Reported Items

Discontinued

Operations (net of tax)

Extraordinary Items (net of tax)

Format: Multi-Step Income Statement

Operating

section
Nonoperating section
Income tax
Discontinued operations
Extraordinary items
Earnings per share

Operating Section

Nonoperating Section

Separately Reported Items

Reported

above the line - Income from

continuing operations before income tax

Unusual gains and losses (if material)

Reported

below the line - Income before

discontinue operations and extraordinary item

Discontinued operations (net of tax)

Extraordinary items (net of tax)

Separately Reported Items

Reported Below the Line

Intra-Period Tax Allocation

Income

from operations
Discontinued operations
Extraordinary items

Earnings Per Share (EPS)

Reported on the face of the income statement

Income before discontinued operations and
extraordinary items
Separately reported items
Discontinued operations (net of tax)
Extraordinary items (net of tax)

Net income

EPS calculation
[Net income less preferred dividends] [weighted
average of common shares outstanding]

EPS

Accounting Changes
Change

in accounting principle
Change in estimate
Change in reporting entity

Change in Accounting Principle

Accounted

for retrospectively

Revise prior years financial statements

Note: that a change in amortization,
depreciation or depletion method is a change in
accounting principle, but is reported as a
change in accounting estimate.

Change in Accounting Estimate

Accounted

for prospectively

Adjust current and future years

Estimates

include:

Amortization
Depreciation
Depletion
Bad debt expense

Change in Reporting Entity

Accounted

for retrospectively

Revise prior years financial statements

Correction of Accounting Errors

Required

a prior period adjustment to

retained earnings
Made to the earliest period reported in
the comparative financial statements

Retained Earnings Statement

Beginning

balance
Prior period adjustment
correction of an error in the financial
statements of a prior period
Income

or loss
Dividends
Ending balance

Statement of Cash Flows

Operating

activities
Investing activities
Financing activities
Separately

reported

Non-cash investing and/or financing

activities

Methods of Presenting
Cash Flows from Operating Activities
Direct

method
Indirect method
Reconciliation of net income to cash flows

Indirect Method of Reporting Cash

Flows from Operating Activities

Net income
Plus:
Non cash charges
Increases in current liabilities
Decreases in current assets

Less:
Increases in current assets
Decreases in current liabilities

Plus: losses from investing or financing activities

Less: gains from investing or financing activities
Net cash provided by (used by) operating activities