Income Statement Classifications Flashcards

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Questions and Answers

What is rental revenue classified as?

Cost of goods sold

Other revenues and gains (correct)

Operating expenses

Extraordinary items

What does interest expense fall under?

Sales revenue

Operating expenses

Other revenues and gains

Other expenses and losses (correct)

What does beginning retained earnings relate to?

Statement of retained earnings

What are ending retained earnings used for?

Statement of retained earnings and balance sheet Signup and view all the answers

What is dividend revenue classified as?

Other revenues and gains Signup and view all the answers

What do sales returns represent?

Negative value on sales revenue Signup and view all the answers

What do sales discounts indicate?

Negative value on sales revenue Signup and view all the answers

What are selling expenses categorized as?

Operating expenses Signup and view all the answers

What is the definition of sales?

Sales revenue Signup and view all the answers

What does income tax refer to?

Income tax on operating activities Signup and view all the answers

What is bad debt expense considered as?

Operating expense (selling) Signup and view all the answers

What does a change in bad debt percentage indicate?

Operating expenses selling Signup and view all the answers

What does depreciation of sales equipment classify as?

Operating expenses - selling Signup and view all the answers

What is depreciation of manufacturing equipment classified as?

Cost of goods sold Signup and view all the answers

What does omitted depreciation expense on sales equipment represent?

Prior period adjustment Signup and view all the answers

What does additional depreciation expense reflect?

Operating expense for that account Signup and view all the answers

What is an uninsured loss from earthquake damage classified as?

Extraordinary items Signup and view all the answers

What does tax associated with an extraordinary loss constitute?

Contra account in extraordinary items Signup and view all the answers

What does market appreciation on land above cost indicate?

Can't adjust book value for land Signup and view all the answers

Where are cash dividends declared reported?

On statement of retained earnings Signup and view all the answers

What does loss on sale of discontinued operations indicate?

Discontinued operations Signup and view all the answers

What does tax associated with the sale of discontinued operations represent?

Contra account Signup and view all the answers

What does loss from operations of a discontinued segment represent?

Discontinued operations Signup and view all the answers

What does write-down of inventory due to obsolescence indicate?

Other expenses and losses Signup and view all the answers

What does loss from a lawsuit classify as?

Operating expenses - administrative Signup and view all the answers

What is advertising classified as?

Operating expenses - selling Signup and view all the answers

What are sales commissions based on gross profit classified as?

Operating expenses - selling Signup and view all the answers

What is gain on sale of equipment classified as?

Other revenues and gains Signup and view all the answers

What does a cumulative effect of a switch from LIFO to FIFO inventory method appear on?

Statement of retained earnings Signup and view all the answers

Study Notes

Income Statement Classifications

Rental Revenue: Classified as other revenues and gains, reflecting income from leasing assets.
Interest Expense: Represents other expenses and losses related to borrowing and financing activities.
Beginning Retained Earnings: Initiates the statement of retained earnings, reflecting prior period earnings retained in the business.
Ending Retained Earnings: Appears on both the statement of retained earnings and the balance sheet, indicating cumulative profits retained after dividends.
Dividend Revenue: Categorized as other revenues and gains derived from investments in other companies.
Sales Returns: Recorded as a negative value in sales revenue, indicating product returns from customers.
Sales Discounts: Also a negative value on sales revenue, representing discounts given to customers for early payments or volume purchases.
Selling Expenses: Classified as operating expenses that are incurred in the selling process, excluding general administrative expenses.
Sales: Represents total sales revenue generated from selling goods or services.
Income Tax: Reflects the tax liability associated with operating activities and is deducted from income.
Bad Debt Expense: Considered an operating expense within selling, acknowledging the cost of uncollected receivables.
Change in Bad Debt Percentage: Represents an estimated adjustment in bad debts, indicating a shift from 2% to 3% estimation of uncollectible accounts.
Depreciation of Sales Equipment: Recorded as an operating expense under selling, reflecting the wear and tear of equipment used in sales.
Depreciation of Manufacturing Equipment: Classified under cost of goods sold, indicating the cost allocation of manufacturing assets over time.
Omitted Depreciation Expense: If depreciation expense for sales equipment is overlooked, it results in a prior period adjustment shown on the statement of retained earnings.
Additional Depreciation Expense: Due to changes in estimates, it is recorded as an operating expense related to the specific asset account.
Uninsured Loss from Earthquake Damage: Classified as extraordinary items, recognizing significant, unusual losses that impact operations.
Tax Linked to Extraordinary Loss: Also classified as extraordinary items, representing tax liabilities arising from significant losses.
Market Appreciation on Land: Cannot be recorded as it does not adjust book value for land holdings.
Cash Dividends Declared: Reflected on the statement of retained earnings, indicating distribution of earnings to shareholders.
Loss on Sale of Discontinued Operations: Recognized under discontinued operations, reflecting losses from selling parts of the business.
Tax Associated with Discontinued Operations: Demonstrates contra accounts between tax effects and discontinued operations' financial statements.
Loss from Operation of Discontinued Segment: Identified as discontinued operations, representing ongoing losses from segments not retained.
Write Down of Inventory Due to Obsolescence: Recorded as other expenses and losses; dependent on the sales potential of the inventory.
Loss from Lawsuit: Classified as operating expenses within administrative expenses, reflecting legal claim costs.
Advertising: Considered an operating expense focused on selling activities to promote products or services.
Sales Commissions Based on Gross Profit: Operating expenses considered selling expenses based on sales performance.
Gain on Sale of Equipment: Recognized as other revenues and gains, reflecting profits from selling fixed assets.
Cumulative Effect from LIFO to FIFO Switch: Appears on the statement of retained earnings, showing the impact of changing inventory accounting methods.

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Test your knowledge on key terms related to income statement classifications with these flashcards. Each card features important definitions that are crucial for understanding financial statements. Perfect for accounting students or professionals looking to refresh their skills.