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The Appendix
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Understanding the Income Statement
Detailed Review of
the Income
Statement
Revenue Recognition
Expense Recognition
Additional Income Statement Considerations
Reporting and Analyzing the Income Statement
Detailed Review of the Income Statement
Detailed Review of the Income Statement > Understanding the Income Statement
Understanding the Income Statement

• Revenue
• Cost of Goods Sold and Gross Profit
• Operating Expenses, Non-Operating Expenses, and Net Income
• Income Statement Formats
www.boundless.com/accounting/textbooks/boundless-accounting-textbook/detailed-review-of-the-income-statement-13/understanding-the-
income-statement-84/
Detailed Review of the Income Statement > Revenue Recognition
Revenue Recognition
• The Importance of Timing: Revenue and Expense Recognition
• Current Guidelines for Revenue Recognition
• Recognition of Revenue at Point of Sale or Delivery
• Recognition of Revenue Prior to Delivery
• Recognition of Revenue After Delivery
• Differences Between Accrual-Basis and Cash-Basis Accounting
www.boundless.com/accounting/textbooks/boundless-accounting-textbook/detailed-review-of-the-income-statement-13/revenue-recognition-85/
Detailed Review of the Income Statement > Expense Recognition
Expense Recognition
• Expense Recognition
• Current Guidelines for Expense Recognition
• Differences Between Accrued and Deferred Expenses
www.boundless.com/accounting/textbooks/boundless-accounting-textbook/detailed-review-of-the-income-statement-13/expense-recognition-86/
Detailed Review of the Income Statement > Additional Income Statement Considerations
Additional Income Statement Considerations

• Impact of the Operating Cycle on the Income Statement
• Reporting Irregular Items
• Special Reporting
www.boundless.com/accounting/textbooks/boundless-accounting-textbook/detailed-review-of-the-income-statement-13/additional-income-
statement-considerations-87/
Detailed Review of the Income Statement > Reporting and Analyzing the Income Statement
Reporting and Analyzing the Income Statement

• Preparation of the Income Statement
• Income Statement Analyses
www.boundless.com/accounting/textbooks/boundless-accounting-textbook/detailed-review-of-the-income-statement-13/reporting-and-analyzing-
the-income-statement-88/
Appendix
Key terms
• accrual A charge incurred in one accounting period that has not been paid by the end of it.
• accrual A charge incurred in one accounting period that has not been paid by the end of it.
• accrual accounting refers to the concept of recognizing and reporting revenues when earned and expenses when incurred,
regardless of the effect on cash.
• accrual basis accounting A method of accounting where income is not recorded until earned and expenses are not recorded
until incurred.
• accrue To increase, to augment; to come to by way of increase; to arise or spring as a growth or result; to be added as
increase, profit, or damage, especially as the produce of money lent.
• accrued expense Accrued expense is a liability with an uncertain timing or amount, the reason being no invoice has been
received yet.
• accrued revenue income recognized before cash is received
• capital expenditure Funds spent by a company to acquire or upgrade a long - term asset
• cash-basis accounting A method of accounting where income is recorded when cash is received and expenses are recorded
when cash is paid.
• conservatism A risk-averse attitude or approach; for accounting purposes, it relates to disclosing expenses and losses incurred
immediately and delaying the recognition of revenues and gains until realized.
• consigned good a good sent to another person where the seller still retains ownership until ownership is transferred or the good
is sold
• Cost of Goods Sold refers to the inventory costs of the goods a business has sold during a particular period (sometimes
abbreviated as COGS).
• deferral An account where the asset or liability recording cash paid or received is not realized until a future date (accounting
period)
• deferred expense A deferred expense or prepayment, prepaid expense, is an asset representing cash paid out to a counterpart
for goods or services to be received in a later accounting period.
• dilute To cause the value of individual shares to decrease by increasing the total number of shares.
• disclosure The act of revealing something.
• expense In accounting, an expense is money spent or costs incurred in an businesses efforts to generate revenue
• expense In accounting, an expense is money spent or costs incurred in an businesses efforts to generate revenue
• fixed asset Asset or property which cannot easily be converted into cash, such as land, buildings, and machinery.
• FOB Stands for "Free on Board" or "Freight on Board"; specifies which party (buyer or seller) pays for shipment and loading
costs, and/or where responsibility for the goods is transferred.
• gross profit the difference between revenue and the cost of making a product or providing a service before deducting overhead,
payroll, taxation, and interest payments
• income In U.S. business and financial accounting, the term "income" is also synonymous with revenue; however, many people
use it as shorthand for net income, which is the amount of money that a company earns after covering all of its costs.
• income statement Displays the revenues recognized for a specific period and the cost and expenses charged against these
revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes. The purpose of the income
statement is to show managers and investors whether the company made or lost money during the reporting period.
• income statement A calculation which shows the profit or loss of an accounting unit (company, municipality, foundation, etc.)
during a specific period of time, providing a summary of how the profit or loss is calculated from gross revenue and expenses.
• incur To render somebody liable or subject to.

• intangible asset Any valuable property of a business that does not appear on the balance sheet, including intellectual property,
customer lists, and goodwill.
• irregular item An unusual occurrence reported separately from the standard income statement because it is unlikely to recur.
• liability An obligation, debt or responsibility owed to someone.
• liability An obligation, debt or responsibility owed to someone.
• matching principle Expenses should be matched with revenues.
• matching principle An accounting principle related to revenue and expense recognition in accrual accounting.
• matching principle An accounting principle related to revenue and expense recognition in accrual accounting.
• Multiple-Step Revenues are detailed, cost of goods sold is subtracted to show gross profit, operating expenses are separated
from other expenses, and operating income is separated from other income.
• net income Gross profit minus operating expenses and taxes.
• net loss when revenue is less than expenses

• operating cycle The average time between purchasing or acquiring inventory and receiving cash proceeds from its sale.
• Operating Expense Any expense incurred in running a business, such as sales and administration, as opposed to production.
• profitability The capacity to make a profit.
• ratio A number representing a comparison between two things.
• retained earnings Retained earnings are the portion of net income that is retained by the corporation rather than distributed to
its owners as dividends.
• revenue Income that a company receives from its normal business activities, usually from the sale of goods and services to
customers.
• revenue Income that a company receives from its normal business activities, usually from the sale of goods and services to
customers.
• revenue expenditures an ongoing cost for running a product, business, or system
• Revenue Recognition Revenue should not be recorded until the earnings process is nearly complete and there is little
uncertainty as to whether or not collection of payment will occur.
• revenue recognition principle income is recognized when it is realised or realisable, and is earned (usually when goods are
transferred or services rendered), no matter when cash is received
• Single-Step All expenses are combined in a single section including cost of goods sold.
Service Delivery
Delivery of goods or service may not be enough to allow for a business to recognize revenue on a sale if there is doubt that the customer will pay what it
owes.
Flickr. "All sizes | Technical Services 16 | Flickr - Photo Sharing!." CC BY-SA http://www.flickr.com/photos/sanjoselibrary/5077983155/sizes/l/ View on
Boundless.com
Street Market in India with Goods for Sale

A street market seller recognizes revenue when he relinquishes his merchandise to a buyer and receives payment for the item sold.
Flickr. "Goods for sale, Calangute beach, Goa, India | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/paulmannix/464063059/ View on
Boundless.com
Revenues and Expenses

This graph shows the growth of the revenues, expenses, and net assets of the Wikimedia Foundation from june 2003 to june 2006.
Wikimedia. "Revenues and expenses." CC BY-SA http://commons.wikimedia.org/wiki/File:Revenues_and_expenses.png View on Boundless.com
A simple cash register

Cash registers are a point at which companies capture revenue.
Stock.KCHNG. CC BY http://www.sxc.hu/browse.phtml?f=download&id=424857 View on Boundless.com
Income Statement
Operating expenses, non operating expenses and net income are three key areas of the income statement.
Stock.KCHNG. CC BY http://www.sxc.hu/pic/m/a/as/asterisco/353454_piggy_bank_3.jpg View on Boundless.com
Income Statement
Income Statements commonly come in two formats
Stock.KCHNG. CC BY http://www.sxc.hu/pic/m/s/sv/svilen001/1388612_market_movements_2.jpg View on Boundless.com
Cost of Good Sold & Gross Profit

Gross profit = Net sales - Cost of goods sold
Stock.KCHNG. CC BY http://www.sxc.hu/pic/m/d/de/designkryt/387599_a_thousand_dollars.jpg View on Boundless.com
The company's income statement

The income statement shows a company's profit or loss.
Flickr. "All sizes | EGL P&L web | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/7paths/3792294012/sizes/m/ View on Boundless.com
A Sample Income Statement

Expenses are listed on a company's income statement.
Flickr. "All sizes | y2cary3n6mng-5ha51l-income-statement-example | Flickr - Photo Sharing!." CC BY-SA http://www.flickr.com/photos/sampjb/7690678408/sizes/l/
View on Boundless.com

Presentation of Revenue Trends over Time

Guidelines for revenue recognition will affect how and when revenue is reported on the income statement.
Flickr. "Missouri Revenue suffered in 2009 | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/hotflashblogger/4341243331/ View on Boundless.com
Goods in Inventory
Depending on the shipping terms of the sale, a seller may not recognize revenue on goods sold that are pending delivery.
Flickr. "20111020-FNS-LSC-0063 | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/usdagov/6629278631/ View on Boundless.com


Balance Sheet
Accrued and deferred expenses are both listed on a company's balance sheet.
Wikimedia. "DWBA DBS." CC BY-SA http://commons.wikimedia.org/wiki/File:DWBA_DBS.jpg View on Boundless.com
A cashier at a hotel in Thailand

The cash-basis method, unlike the accrual method, relies on the receipt and payment of cash to recognize revenues and expenses.
Flickr. "Cashier | Flickr - Photo Sharing!." CC BY-SA http://www.flickr.com/photos/stefanedberg62/2406508840/ View on Boundless.com

Attribution
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Additional Income Statement Considerations

Reporting and Analyzing the Income Statement

Detailed Review of the Income Statement

Understanding the Income Statement

Additional Income Statement Considerations

Reporting and Analyzing the Income Statement

• incur To render somebody liable or subject to.

• net loss when revenue is less than expenses

Street Market in India with Goods for Sale

Revenues and Expenses

A simple cash register

Cost of Good Sold & Gross Profit

The company's income statement

A Sample Income Statement

A Sample Income Statement

Presentation of Revenue Trends over Time

A Sample Income Statement

A Sample Income Statement

A cashier at a hotel in Thailand

A Sample Income Statement

• Wikipedia. "Earnings per share." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Earnings_per_share

• Wiktionary. "operating cycle." CC BY-SA 3.0 http://en.wiktionary.org/wiki/operating_cycle

• Wiktionary. "dilute." CC BY-SA 3.0 http://en.wiktionary.org/wiki/dilute

• Wikipedia. "Income statement." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Income_statement

• Wiktionary. "expense." CC BY-SA 3.0 http://en.wiktionary.org/wiki/expense

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