UNDERSTANDING INCOME STATEMENT
The income statement provides financial results of a company's business activities
over a period. The basic formula for the income statement is as follows: net income
is equal to the revenue minus expenses. We then conclude the reading with a
discussion on the analysis of the income statements and the concept of
comprehensive income. In 2014, IASB and FASB issued converged accounting
standards which take effect for periods starting first January 2018 and under US
GAAP the date is 15th December 2017. Revenue recognition rules are different
under IFRS and US CAP this makes it difficult to compare IFRS versus US CAP
companies. A contract is an agreement and commitment with commercial
substance between two parties it establishes each party's obligations and rights
including payment terms. A contract exists only if collectibility is probable. Step two
identifies the performance obligations in the contract. The performance obligations
within a contract represent promises to transfer distinct goods or services. A good
or service is distinct if number one, the customer can benefit from it on its own or in
combination with readily available resources.
Revenue is recognized when the entity satisfies a performance obligation. The new
converged standard allows companies to recognize variable consideration if they
can conclude that it will not reverse the cumulative revenue in the future.
Disclosure requirements are more rigorous with the new converged standard.
Companies should disclose balances of any contract related assets and liabilities
and significant changes in those balances remaining performance obligations and
transaction price allocated to those obligations. The curriculum does not spend
much time on this but very briefly contract related asset related assets are not
required under the learning outcomes.
Expenses are decreases in economic benefit during the accounting period in the
form of outflows or depletion of assets that result in decreases in equity. Expenses
to generate revenue are recognized in the same period as revenue. This is a
complicated way of expressing a very simple concept. When you pay rent, then
The income statement provides financial results of a company's business activities
over a period. The basic formula for the income statement is as follows: net income
is equal to the revenue minus expenses. We then conclude the reading with a
discussion on the analysis of the income statements and the concept of
comprehensive income. In 2014, IASB and FASB issued converged accounting
standards which take effect for periods starting first January 2018 and under US
GAAP the date is 15th December 2017. Revenue recognition rules are different
under IFRS and US CAP this makes it difficult to compare IFRS versus US CAP
companies. A contract is an agreement and commitment with commercial
substance between two parties it establishes each party's obligations and rights
including payment terms. A contract exists only if collectibility is probable. Step two
identifies the performance obligations in the contract. The performance obligations
within a contract represent promises to transfer distinct goods or services. A good
or service is distinct if number one, the customer can benefit from it on its own or in
combination with readily available resources.
Revenue is recognized when the entity satisfies a performance obligation. The new
converged standard allows companies to recognize variable consideration if they
can conclude that it will not reverse the cumulative revenue in the future.
Disclosure requirements are more rigorous with the new converged standard.
Companies should disclose balances of any contract related assets and liabilities
and significant changes in those balances remaining performance obligations and
transaction price allocated to those obligations. The curriculum does not spend
much time on this but very briefly contract related asset related assets are not
required under the learning outcomes.
Expenses are decreases in economic benefit during the accounting period in the
form of outflows or depletion of assets that result in decreases in equity. Expenses
to generate revenue are recognized in the same period as revenue. This is a
complicated way of expressing a very simple concept. When you pay rent, then
