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Chapter : M easurement and Repor ting ofRevenues and Expenses , Gains and L osses

Chapter Objectives :

1- List the elements of financial statement anddefine them.2- define events, circumstances, and

transaction.3- Describe the criterion for recognition ofevents.

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4- Distinguish between “Revenue” and“gains”.

5-Distinguish between “Expenses” and“Losses”.

6- Explain the scope and measurement criteriafor expenses.

7- discuss the matching of costs andrevenues.

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Elements of F inancial Statements (10)- Ten elements of financial statement , of

which five are concerned with balance

sheet while the other five belong to theincome statement.- The items in financial statement represent

in words and numbers certain enterpriseresources , claims to those resources , andthe effects of transactions and other eventsand circumstances that result in charge in

those resources and claims.

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Elements of F inancial Statements (10)

1. Assets

2. Liabilities3. Equity4. Investments by

Owners5. Distributions to

Owners

6. Comprehensive

Income7. Revenues8. Expenses

9. Gains10. Losses

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Elements of Balance SheetAssets:

- Are probable future economic benefitsobtained or controlled by a particularentity as a result of past transactions or

events.- Resource controlled by enterprise as a

result of past events .

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Elements of Balance Sheet

Liabilities:

- are probable future sacrifices ofeconomic benefit as result of pastevents or transactions.

- A liability as a present obligation ofenterprise arising from past events.

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Elements of Balance SheetEquity :

- Is the residual interest in assets of an entity that

remain after deducting it’s liability (the equity =owner equity)

Investment by owner:- Are increase in net assets of a particular

enterprise resulting from transfers to it fromother entities of something of value toobtain or increase equity in it.

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Elements of Balance SheetDistribution to owners :

- Are decrease in net assets of a particular enterprise resulting fromtransferring assets rending services byenterprise to owner.

- Distribution to owners decrease equityin an enterprise.

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Elements of I ncome StatementRevenue:

- Are inflows or other enhancement of assetsof entity or settlement of its liabilitiesduring a period from delivering or

producing goods rendering services orother activities that constitute the entity’songoing major or central operations.

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Elements of I ncome StatementExpenses:

- Are outflows or other using up of assets ofentity or incurrence of its liabilities duringa period from delivering or producinggoods rendering services or carrying outother activities that constitute the entity’songoing major or central operations .

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Elements of I ncome Statement

Comprehensive Income:

- Is the change in equity (netassets) of entity during a

period from transactionfrom non-owner sources. It includes all changes inequity during a periodexcept those resulting frominvestments by owners anddistributions to owners.

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All changes in equity during a period except thoseresulting from investments by owners and distributionsto owners.

Income Statement (in thousands)Sales 285,000$Cost of goods sold 149,000

Gross profit 136,000 Operating expenses:

Advertising expense 10,000 Depreciation expense 43,000

Total operating expense 53,000 Income from operations 83,000 Other revenue (expense):

Interest revenue 17,000 Interest expense (21,000)

Total other (4,000) Income before taxes 79,000 Income tax expense 24,000 Net income 55,000$

Other ComprehensiveIncome

Unrealized gains andlosses on available-for-sale securities.Translation gains andlosses on foreigncurrency.Plus others+

Reported inStockholders’ Equity

LO 8 Explain how to report other comprehensive income.

Elements of I ncome Statement

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Elements of I ncome Statement

Comprehensive Income:

The FASB decided that companies must display thecomponents of other comprehensive income in oneof three ways:

(1) a second income statement;(2) a combined statement of comprehensive

income; or(3) as a part of the statement of stockholders’

equity.