C H A P T E R 4

INCOME STATEMENT AND RELATED INFORMATION

Presented By:Ehab Abdouwww.easyaccounting.info

C H A P T E R 4 Introduction

What is the Income Statement ( Earning Statement)?

Income statement is the report that measures the success of a company operations for a given period of time.

C H A P T E R 4 Introduction

What is the Usefulness of income statement?It provides users ( especially investors and creditors) with information that helps them in predicting the future cash flow of a company, the users can use the income statement information to: • Evaluate past performance of the company.• Predicting future performance.• assess the risk or uncertainty of achieving

future cash flows.

C H A P T E R 4 Introduction

What is the limitations of income statement?• Companies omit items that cannot be

measured reliably, ( Unrealized Gain/Loss on Investments)

• Income is affected by the accounting methods employed, (Depreciation methods)

• Income measurement involves judgment, ( Bad debt expenses)

C H A P T E R 4 Introduction

What is the Earning Management ?• Is the use of accounting techniques to produce

financial reports that may paint an overly positive picture of a company's business activities and financial position.

So that: Quality of earnings is reduced if earnings

management results in information that is less useful for predicting future earnings and cash flows.

C H A P T E R 4 FORMAT OF THE INCOME STATEMENT

What is the elements of the income statement?Income statement includes:• Income ( Revenues and Gains )• Expenses ( Expenses and Losses )

C H A P T E R 4 FORMAT OF THE INCOME STATEMENT

1- Income ( Revenues and Gains ) Increase in economic benefits during the accounting

period in the form of inflow or enhancements of assets or decrease in liabilities that result in increase in equity, other than those relating to contributions from shareholders.• Revenues : arise from ordinary activities of a

company.• Gain : may or may not arise from ordinary

activities of a company.

C H A P T E R 4 FORMAT OF THE INCOME STATEMENT

1- Income ( Revenues and Gains ) Increase in economic benefits during the accounting period in the form of inflow or

enhancements of assets or decrease in liabilities that result in increase in equity, other than those relating to contributions from shareholders.• Revenues : arise from ordinary activities of a company.• Gain : may or may not arise from ordinary activities of a company.

Revenues Accounts Revenues AccountsSales Revenue Gains on the sale of long-term assetsInterest revenueDividend revenueService revenueRent revenue

Unrealized gains on available-for-sale securities

C H A P T E R 4 FORMAT OF THE INCOME STATEMENT

2- Expenses ( Expenses and Losses ) Decrease in economic benefits during the accounting

period in the form of outflow or depletions of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distributions to shareholders.• Expenses : arise from ordinary activities of a

company.• Losses : may or may not arise from ordinary

activities of a company.

C H A P T E R 4 FORMAT OF THE INCOME STATEMENT

2- Expenses ( Expenses and Losses ) Decrease in economic benefits during the accounting period in the form of

outflow or depletions of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distributions to shareholders.• Expenses : arise from ordinary activities of a company.• Losses : may or may not arise from ordinary activities of a company.

Expenses Accounts Losses AccountsCost of goods sold Losses on restructuring chargesDepreciation expenseInterest expenseRent expenseSalary expense

Losses on to sale of long-term assetsUnrealized losses on available-for-sale securities.

C H A P T E R 4 FORMAT OF THE INCOME STATEMENT

What is the Minimum Disclosure required by IFRS for the income statement? IFRS requires, at a minimum, the following be presented on

the income statement.

C H A P T E R 4 FORMAT OF THE INCOME STATEMENT

Formats of Income Statement

Traditional Format Comprehensive Format

The common Format used by the majority of Companies.

Used When a company has some items affects on its equity, but these

items can not be reported in the Traditional Income Statement.

• Unrealized gains and losses on available-for-sale securities.• Translation gains and losses on foreign currency.• Change in revaluation surplus.• Unrealized gains and losses on certain hedging transaction

Illustration 4-21Comprehensive Income Formats

A second Comprehensive income statement Format

LO 9 Explain how to report other comprehensive income.

C H A P T E R 4 FORMAT OF THE INCOME STATEMENT

LO 9 Explain how to report other comprehensive income.

Illustration 4-22

C H A P T E R 4 FORMAT OF THE INCOME STATEMENT

Comprehensive Income Formats

A Combined Comprehensive income statement Format

C H A P T E R 4 FORMAT OF THE INCOME STATEMENT

What is the Intermediate Component of the income statement?

It is Common for companies to present some or all of these sections and totals within the income statement

Traditional Income Format