Question

3) A) Provide a discussion on the presentation of the income statement. Include in your discussion an explanation of the reporting of: - Comprehensive income - Discontinued operations - Unusual or infrequent items. B) Describe the major sections of the balance sheet. Include an analysis of items that would be considered current assets and current liabilities.

Answer 1

(A) the income statement is used in accounting to show revenue and expenses for a business.the income statement is an important tool for investors seeking to gauge the heath of the business and determine weather it is a worthy investment.there are two methods used to prepare income statement.

1.single step method; is simply reports revenue in one section and expenses in another,yielding the gross profit.this method does not break down the operating expenses nor attribute them to defferent contributions of revenue.this makes it difficulty to judge whether the business is operating efficiantly.this method do not have much insights as to how the earnings were produced.

2.multi step method; revenue and expenses are stated in categories,including the separation of operating and non operating revenue and expenses.it gives 3 important figures .

a)gross profit

b) operating profit

c) net profit

this gives investors a better look at where a business is profitable,what is weekneses are and whether it is operating efficiently.

COMPREHENSIVE INCOME: it is a sum of net income and other items that must be bypass the income statement because they have not been realized,including items like unrealized holding gains or loss from available for sale securities and foreign currency transaction gains or losses.it can be showed in part of income statement or separatly.

DISCONTINUED OPERATIONS: this is a activity which can be refers to parts of a company core business or product line that have been diversted or shut down.these are reported on the income statement separatly from continuing operations.

UNUSUAL OR INFREQUENT ITEMS: the transactions that are unusual in nature or infrequent ,but not both .such transactions may include gain or loss from the sale of a company assets,write offs, and restructuring.

(B) the major sections of the balance sheet are

a)assets; it includes current assets,long term assets,intangible assets.

b)liabilities; it includes current liabilities and long term liabilities.

c)equity; it includes common stock,preffered stock,and retained earnings.

CURRENT ASSETS; these assets which are converted into cash with in a period of 12 months .which includes cash,account receivables,inventories and prepaid expenses etc.this is shown under the head of assets in balance sheet.

CURRENT LIABILITIES: the liabilities to be discharged or disposed off with in a period of one year.which includes accounts payable ,short term debts,dividends and notes payable etc. this is shown under the head of liabilities in balance sheet.