Classified Income Statement Flashcards

Questions and Answers

What are the 9 steps to a classified income statement? (Select all that apply)

Gross profit on sales (correct)

Net income from operations (correct)

Net income for the year (correct)

Total expenses

Operating revenue (correct)

What is the first section of the classified income statement?

Operating revenue

What information is required to calculate the cost of goods sold?

Beginning inventory, Net delivered cost of purchases, Ending inventory

What is the gross profit on sales?

The difference between net sales and the cost of goods sold Signup and view all the answers

What do operating expenses typically include?

Rent, utilities, and office salaries Signup and view all the answers

Why is it important to keep operating and non-operating income separate?

It helps financial statement users learn about the operating efficiency of the firm. Signup and view all the answers

What is classified as other income?

Income earned from sources other than normal business activities Signup and view all the answers

What expenses are included in the Other Expenses section?

Expenses not directly connected with business operations Signup and view all the answers

How is net non-operating expense calculated?

Other income minus other expenses Signup and view all the answers

How is net income for the year determined?

Net income from operations minus net non-operating expense Signup and view all the answers

What is a classified income statement also known as?

Multiple step income statement Signup and view all the answers

Study Notes

Classified Income Statement Overview

A classified income statement is structured into multiple steps to provide a comprehensive view of a company’s financial performance.
Consists of nine essential components that guide the user from operating revenue to net income for the year.

Steps in Classified Income Statement

Operating revenue: Represents revenue generated from core business activities.
Cost of goods sold (COGS): Requires three key inputs:
- Beginning inventory
- Net delivered cost of purchases
- Ending inventory
Gross profit on sales: Calculated by subtracting COGS from net sales to show profitability from sales.
Operating expenses: Include general and administrative costs like rent, utilities, and salaries.
Net income from operations: Differentiates between operating and nonoperating income, indicating the firm's operational efficiency.
Other income: Refers to income earned from activities outside normal business operations, such as interest or investment income.
Other expenses: Captures expenses not directly linked to the core business, like losses from asset sales.
Net non-operating expense: Calculated as other income minus other expenses to evaluate overall non-operational impact.
Net income for the year: Determined by subtracting net non-operating expense from net income from operations, representing total profitability.

Key Concepts

Operating and nonoperating income separation is crucial for analyzing a firm's operating efficiency and overall financial health.
The classified income statement provides clearer insights into various income and expense categories for stakeholders.

Description

Test your knowledge on the steps of a classified income statement with these flashcards. Each card focuses on key components such as operating revenue, cost of goods sold, and net income. Perfect for students in accounting or finance courses.