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Accounting For Dummies®, 4th Edition
book

Accounting For Dummies®, 4th Edition

by John A. Tracy CPA
June 2008
Beginner content levelBeginner
402 pages
11h 4m
English
For Dummies
Content preview from Accounting For Dummies®, 4th Edition

4.5. Reporting Extraordinary Gains and Losses

I have a small confession to make: The income statement example shown in Figure 4-1 is a sanitized version as compared with actual income statements in external financial reports. If you took the trouble to read 100 income statements, you'd be surprised at the wide range of things you'd find in these statements. But I do know one thing for certain you would discover.

Many businesses report unusual, extraordinary gains and losses in addition to their usual revenue, income, and expenses. In these situations, the income statement is divided into two sections:

  • The first section presents the ordinary, continuing sales, income, and expense operations of the business for the year.

  • The second section presents any unusual, extraordinary, and nonrecurring gains and losses that the business recorded in the year.

The road to profit is anything but smooth and straight. Every business experiences an occasional discontinuity — a serious disruption that comes out of the blue, doesn't happen regularly or often, and can dramatically affect its bottom-line profit. In other words, a discontinuity is something that disturbs the basic continuity of its operations or the regular flow of profit-making activities.

Here are some examples of discontinuities:

  • Downsizing and restructuring the business: Layoffs require severance pay or trigger early retirement costs; major segments of the business may be disposed of, causing large losses.

  • Abandoning product lines ...

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Publisher Resources

ISBN: 9780470246009Purchase book