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Preparation of Income Statements for Managerial Accounting Mcom Delhi University


Preparation of Income Statements for Managerial Accounting Mcom Delhi University

Preparation of Income Statements for Managerial Accounting Mcom Delhi University:- we will provide complete detials of Preparation of Income Statements for Managerial Accounting Mcom Delhi University in this article.

Preparation of Income Statements for Managerial Accounting Mcom Delhi University

An income statement includes detail on operating and non-operating activities.

Income Statement An income statement is a company’s financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the “top line”) is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as net profit or the “bottom line”). It 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 period being reported.

Preparation of Income Statements for Managerial Accounting Mcom Delhi University:- Operating section Revenue

Cash inflows or other enhancements of assets of an entity during a period from delivering or producing goods, rendering services, or other activities constitute the entity’s ongoing major operations. It is usually presented as sales minus sales discounts, returns, and allowances. Every time a business sells a product or performs a service, it obtains revenue. This often is referred to as gross revenue or sales revenue.

A Sample Income Statement Expenses are listed on a company’s income statement.

Preparation of Income Statements for Managerial Accounting Mcom Delhi University:-Expensces

Cash outflows or other using-up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities constitute the entity’s ongoing major operations.

  • Cost of Goods Sold (COGS)/Cost of Sales represents the direct costs attributable to goods produced and sold by a business (manufacturing or merchandising). It includes material costs, direct labor, and overhead costs (as in absorption costing), and excludes operating costs (period costs), such as selling, administrative, advertising or R&D, etc.
  • Selling, General, and Administrative expenses (SG&A or SGA) consist of the combined payroll costs. SGA is usually understood as a major portion of non-production related costs, in contrast to production costs, such as direct labor. Selling expenses represent expenses needed to sell products (e.g., salaries of sales people, commissions and travel expenses, advertising, freight, shipping, depreciation of sales store buildings and equipment, etc.). General and Administrative (G&A) expenses represent expenses to manage the business (salaries of officers/executives, legal and professional fees, utilities, insurance, depreciation of office building and equipment, office rents, office supplies, etc.).
  • Depreciation / Amortization is the charge with respect to fixed assets/intangible assets that have been capitalized on the balance sheet for a specific (accounting) period. It is a systematic and rational allocation of cost rather than the recognition of market value decrement.
  • Research & Development (R&D) expenses represent expenses included in research and development.

Non-operating Section

  • Other revenues or gains include those from other than primary business activities (e.g., rent, income from patents). They also includes unusual gains that are either unusual or infrequent, but not both (e.g., gains from the sale of securities or gain from disposal of fixed assets)
  • Other expenses or losses not related to primary business operations (e.g., foreign exchange loss).
  • Finance costs are costs of borrowing from various creditors (e.g., interest expenses, bank charges).
  • Income tax expense is the sum of the amount of tax payable to tax authorities in the current reporting period (current tax liabilities/ tax payable) and the amount of deferred tax liabilities (or assets).

Irregular Items

Discontinued operations is the most common type of irregular items. Shifting business location(s), stopping production temporarily, or changes due to technological improvement do not qualify as discontinued operations. Discontinued operations must be shown separately.Disclosures Certain items must be disclosed separately in the notes (or the statement of comprehensive income), if material, including:

  • Write-downs of inventories to net realizable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs
  • Restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring
  • Disposals of items of property, plant, and equipment
  • Disposals of investments
  • Discontinued operations
  • Litigation settlements
  • Other reversals of provisions

Earnings Per Share

Because of its importance, earnings per share (EPS) are required to be disclosed on the face of the income statement. A company that reports any of the irregular items must also report EPS for these items either in the statement or in the notes. There are two forms of EPS reported:

Basic:In this case “weighted average of shares outstanding” includes only actual stocks outstanding.

Diluted: In this case, “weighted average of shares outstanding” is calculated as if all stock options, warrants, convertible bonds, and other securities that could be transformed into shares are transformed. This increases the number of shares and so EPS decreases. Diluted EPS is considered to be a more reliable way to measure EPS.

Explain the difference between the operating and non-operating section of the income statement

KEY POINTS

  • Cash inflows or other enhancements of assets of an entity during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major operations fall under the revenue category of the income statement.
  • Cash outflows or other using up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major operations appear under the expenses section of the income statement.
  • Discontinued operations is the most common type of irregular items. Shifting business location(s), stopping production temporarily, or changes due to technological improvement do not qualify as discontinued operations. Discontinued operations must be shown separately.
  • Certain items must be disclosed separately in the notes, if material, including write-downs of inventories to net realizable value or of property, and restructuring of the activities of an entity and reversal of any provisions for the costs of restructuring; and more.

TERMS

revenue

Income that a company receives from its normal business activities, usually from the sale of goods and services to customers.

expense

In accounting, an expense is money spent or costs incurred in an businesses efforts to generate revenue

disclosure

The act of revealing something.

Preparation of Income Statements for Managerial Accounting Mcom Delhi University
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