According to your text, the accounting profession has adopted a modified all-inclusive concept to income reporting. Using this approach companies report unusual or irregular items as a part of net income. What are these items and they are they reported separately on the income statement?
Just response each posted
Unusual or irregular items that are reported, fall under the non- operating portion of the income statement. Discontinued and extraordinary items are considered one-time deeds that are not repetitive from quarter to quarter, or year to year. In a normal income statement, you have normal revenue and expenses to calculate net income.
The non-operating section comes in when there is a dramatic change that does not occur on a regular basis. A shift in income would be: a one-time gain on investment securities, a jump in investment dividends due to the market, a sale of equipment, etc. A shift in liability or expense, among other items, would be: repairs or maintenance on buildings damaged by natural disasters, legal costs resulting from a lawsuit settlement, and the sale of long-term assets. (Kokemuller, n.d.)
When looking at an income statement with a non-operating section added, those items will only effect current outcomes and will not have long-term effects on the company. Anyone looking at this statement could see that the income or loss of the company could be justified in the non-operating section, and they would be able to make a more informed decision upon that fact.
Investopedia. (2018) Reasons to Look at Non-Operating Income. Retrieved October 10, 2018, from https://www.investopedia.com/terms/n/non-operating…
Kokemuller, Neil. (n.d.). What Qualifies As Irregular on the Income Statement? Small Business – Chron.com. Retrieved from http://smallbusiness.chron.com/qualifies-irregular-income-statement-50556.html
The income statement reports all the revenue and expenses that result in net income or net losses incurred during a specific period of an entity. Companies normally report the non-recurring items such as unusual or infrequent income or losses separately from the normal income section and put them under the income from continuing operations (Kieso, Weygandt, & Warfield, 2016, p. 164). The purpose of is to ensure it does not get misrepresented the company’s regular performance and allows users to better assess the continuing income that generates the capacity income of the business. It also helps the internal and external users to easily identify the abnormal gains and losses. Besides, it is better for analysts to foresee the recurrence items in the coming periods. According to Kieso, Weygandt, & Warfield, “those income items fall into four general categories: unusual and infrequent gains and losses, discontinue operations, noncontrolling interest, and earnings per share” (2016, p. 162). This concept was exposed by FASB and called all-inclusive or comprehensive concept. Using this concept making the statement more meaningful and easier to compare data from one period to another and even among the companies in the same industry.
The income account statements show the unusual items in a separate section. The elements must be both exceptional and infrequent to be in this section. In the case of gains and losses arising from the sale of fixed assets or changes in inventory valuations are not part of this section. Some companies can show the net income of continuous or regular operations as a separate item, and then list the extraordinary and discontinued items, and finally show the net income. These unusual items affect the calculation of net income from the statement of income, including the result of losses. Ccompanies may classify certain items as unusual in each accounting period to make the amount of net income from ongoing activities look better.
Last Updated on February 11, 2019 by Essay Pro