CHAPTER THREE
Financial Statement Reporting: The Income Statement
IN PREPARING THE INCOME STATEMENT, revenue and expenses must be properly recognized. Many revenue recognition methods exist. Extraordinary and nonrecurring items must be shown separately. The income statement must be presented in the proper format with earnings per share (EPS) disclosed.
HOW IS THE INCOME STATEMENT PRESENTED?
The format of the income statement follows.
| Income from continuing operations before tax |
| Less: Taxes |
| Income from continuing operations after tax |
| Discontinued operations: |
| Income from discontinued operations (net of tax) |
| Loss or gain on disposal of a division (net of tax) |
| Income before extraordinary items |
| Extraordinary items (net of tax) |
| Net Income |
The EPS effect for each of these items is presented.
What is comprehensive income?
Accounting Standards Codification (ASC) No. 220-10-45-3, Comprehensive Income: Overall (Financial Accounting Standards [FAS] No. 130, Reporting Comprehensive Income), mandates that companies report comprehensive income and its components. Comprehensive income consists of two components: net income and “other comprehensive income,” which includes:
- Unrealized (holding) loss or gain on available-for-sale securities
- Foreign currency translation gains or losses
- Change in market value of a futures contract that is a hedge of an asset reported at fair value
Although three options exist for how to report comprehensive income, most often it is presented ...
