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 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 implications of revenue recognition principles for financial analysis;
  • calculate revenue given information that might influence the choice of revenue recognition method;
  • describe general principles of expense recognition, specific expense recognition applications, and implications of expense recognition choices for financial analysis;
  • describe the financial reporting treatment and analysis of non-recurring items (including discontinued operations, extraordinary items, unusual or infrequent items) and changes in accounting standards;
  • distinguish between the operating and non-operating 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 statements; ...

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