Original Question: (Do not reply to this one)
Discuss the four income statement elements defined by SFAC No. 6 with appropriate examples.
Student Discussions:
Reply to each student posts by commenting about their posts and building on the subject (About 100 words each) APA reference.
APA reference. Any sources including, but not limited to:
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2017).Financial accounting theory and analysis: Text and cases(12th ed.). Hoboken, NJ: Wiley.
1-Laura Huguenel
Financial information reported by companies is extremely important to investors, lenders, and creditors when making decisions. “The income statement is of primary importance in the endeavor because of its predictive value, a qualitative characteristic also defined in SFAC No. 8” (Schroeder, Clark, & Cathey, 2017). The four income statement elements defined by SFAC No. 6 include revenues, gains, expenses, and losses.
Revenues are “inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations” (Schroeder et al., 2017). An example is Amazon who divides their revenues into two categories which include product sales and service sales. Product sales are just that, you purchase a product and it gets delivered to your home. Service sales examples include hiring a handy man from the site or an electrician. They are then combined on the income statement to form total net sales.
Gains are the “increases in net assets from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners” (Schroeder et al., 2017). An example of a gain would be owning a building that increases in value. The gain would be unrealized until the time the building is sold.
Expenses are “outflows or other using-up of assets or incurrences of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations” (Schroeder et al., 2017). Examples of expenses include finance costs such as interest expense and income tax expense.
Losses are defined as “decreases in net assets from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except from expenses or distributions to owners” (Schroeder et al., 2017). Examples of losses include a loss on the sale of property or some other asset of the business, losses from retirement of bonds, or even a loss from a lawsuit.
Reference
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2017). Financial accounting theory and analysis: Text and cases (12th ed.). Hoboken, NJ: Wiley.
2-Dayana Alvarez
The income statement is one of the most important financial statement for any company because of its predictive value. The four financial statement elements as defined by SFAC No. 6 are revenues, gains, expenses, and losses.
Revenues are inflows of assets or a decrease in liabilities or a combination of both caused by the provision of services or product sales (Schroeder, Clark, & Cathey, 2017). For example, restaurants earn revenues from both providing a service and selling goods to customers. Under the accrual basis of accounting, revenue is recognized when the goods are shipped or services are delivered to the customer, but under the cash basis of accounting, revenue is recognized when cash is actually received from the customers after they have received the goods or services (Accounting Tools, 2018).
Gains are increases in net assets from incidental transactions of a company and from other transactions and other events that affect the company besides its revenues or investments by the owners (Schroeder, Clark, & Cathey, 2017). An example of a gain would be when a company uses trucks to deliver their products but decide to sell one of their trucks. If the sale proceeds are more than the actual cost of the truck, then the company will recognize a gain since the sale of the truck does not pertain to its regular business activities.
Expenses are outflows of assets or incurrences of liabilities during a period where the company is delivering and producing goods or providing services to its customers (Schroeder, Clark, & Cathey, 2017). An example of expenses would be when a manufacturing company records salaries expenses and cost of goods sold for the goods they produced for sale.
Losses are decreases in net assets from incidental transactions of a company and from other transactions and other events that affect the company besides expenses and distribution to owners (Schroeder, Clark, & Cathey, 2017). An example of a loss would be when there is a fire accident in a manufacturing company or warehouse and the fire destroys the goods or inventory that was ready for sale.
References:
Schroeder, R. G., Myrtle, W. C., & Cathey, J. M. (2017). Financial Accounting Theory and
Analysis: Text and Cases (12th ed.). Hoboken, NJ: Wiley
The Four Basic Financial Statements. (2018). Accounting Tools. Retrieved from
https://www.accountingtools.com/articles/the-four-basic-financial-statements.html