CHAPTER 4
UNDERSTANDING INCOME STATEMENTS
LEARNING OUTCOMES
After completing this chapter, you will be able to do the following:
- Describe the components of the income statement and alternative presentation formats of that statement.
- Describe the general principles of revenue recognition and accrual accounting, specific revenue recognition applications (including accounting for long-term contracts, installment sales, barter transactions, gross and net reporting of revenue), and the implications of revenue recognition principles for financial analysis.
- Calculate revenue given information that might influence the choice of revenue recognition method.
- Describe the general principles of expense recognition, specific expense recognition applications, and the implications of expense recognition choices for financial analysis.
- Describe the financial reporting treatment and analysis of nonrecurring items (including discontinued operations, extraordinary items, unusual or infrequent items) and changes in accounting standards.
- Distinguish between the operating and nonoperating components of the income statement.
- Describe how earnings per share is calculated and calculate and interpret a company’s earnings per share (both basic and diluted earnings per share) for both simple and complex capital structures.
- Distinguish between dilutive and antidilutive securities, and describe the implications of each for the earnings per share calculation.
- Convert income statements to common-size income ...
