The income statement
How a multiple-step income statement is assembled, what each subtotal measures, and the limitations of what the finished statement reports.
Unit 2 begins with the multiple-step income statement. We prepare the statement from sales through net income and then decide what each subtotal can tell us about operating performance.
- Date
- Thu 9/1780 minutes
- Reading
- Chapter 6: Preparing and interpreting the income statement (read by next class) Optional Kieso equivalent: Chapter 3 and Chapter 17
- Engagement points
- Scored5 points for answering at least 75%
Slides and downloads
View the slides online, or download the PDF for offline reading or printing.
Watch this meeting
These materials change during the semester. Report an error or an unclear passage.
Lecture playlist Subscribe on YouTube
The slides of this meeting's deck, each held for as long as the narration over it runs. Read by a speech synthesizer; every line was transcribed back and checked against its script before it was kept.
What to do before class
- Review the statement heading, income statement accounts, and the distinction between a period flow and an ending balance from Lecture 3.
What we will do in class
Recall the statement basics
Review the statement heading and the Unit 1 rules that still apply.
Prepare Granite Harbor's statement
Put the subtotals in order and calculate each one from sales through net income.
Classify eight items
Place each item and explain where a material unusual loss belongs.
Compare income with cash
Test a lender's claim and trace comprehensive income into equity.
Read Apple's income statement
Find the reported subtotals and check how they relate.
Prepare the prior year
Build the earlier statement without a worked answer and compare operating income.
Complete an individual check
Calculate the subtotals, classify an unusual loss, and state why income is not cash.
Do not use extraordinary item
Current United States generally accepted accounting principles do not permit an extraordinary-item category. A material unusual or infrequent loss stays in continuing operations, with its nature and financial effect shown separately or disclosed in the notes.
Assigned reading and deadlines
Solutions to the in-class problems post to D2L after the meeting.
- Read Chapter 6: Preparing and interpreting the income statement after this meeting and before the next class.
Practice and review
You do not have to complete or submit these items. They do not affect your grade.
- Prepare the Northline statement before opening its feedback.
- Work the practice-bank questions on income statement presentation.
- For a textbook explanation, read Kieso Chapter 3.
Lessons, examples, and references
Complete the assigned reading first. Open a link below when you need a definition, another explanation, or more practice.
Lessons
- Classify amounts before comparing statements
A corrected statement line can change a subtotal without changing the amount recorded. Check what each line includes before drawing a conclusion.
- Follow net income and OCI into equity
Learn why some gains and losses enter OCI, how current OCI affects comprehensive income, and how AOCI carries earlier amounts in equity.
Worked examples
- Reconcile Granite Harbor from continuing income through AOCI
Build and verify the five line performance bridge and component equity rollforward while preserving stipulated classification, net of tax, ownership, and measurement boundaries.
Concepts used
Mistakes to avoid
- Mistaken idea: OCI means unrealized or noncash
Correction: **Other comprehensive income (OCI)** contains certain gains and losses that specific accounting rules exclude from net income. The item's accounting classification decides its route. Whether cash moved, or whether the company sold the asset, is not enough to decide.
Questions from this lecture (4)
These prompts are optional, not assigned, submitted, or graded. If you use them, choose an answer before opening the explanation on the linked practice page.