Please, create a main discussion post responding the below topic and respondto the 2 classmate discussion posts attached. Thank you.
-Discuss the four income statement elements defined by SFAC No. 6 with appropriate examples.
Instructions for main post (Around 200 words) Discuss the four income statement elements defined by SFAC No. 6 with appropriate examples. In your response, provide at least one example. Include appropriate citations. (Citations only needed for main post) Instructions for the two classmate responses (around 150 words each) Please, respond to the below two classmate main posts. (Please, the responses need to be a discussion, not an evaluation. You can agree with them and add/comment about their response.) Classmate post #1: Ekaterina Cafano Revenues represent the inflows that resulted from delivering goods or services or any other major operations of a company. For example, a company that manufactures pet products sold $100,000 worth of products for the year. A company would record these sales as revenue. Creditors and investors look at the revenue in order to estimate future cash flows of the company. A company whose revenue is growing each year tells the investor that the company is growing and has a bright future. The company whose revenue is decreasing every year tells the investor that the company is in trouble. With the decreasing revenue streams, the company might have to find another line of business to boost its earnings. Otherwise, the company might have to cease its operations eventually. Gains, on the other hand, are increases of net assets that resulted from incidental activities of a company, other than revenues that were generated during the normal operations of a company or investments by owners. To provide an example of incidental inflows of resources, let’s say a manufacturing company that produce pet products sold a piece of equipment from the manufacturing facility for more than its value, the company would record the difference as a gain on its income statement. Expenses are outflows or incurrence of liabilities that resulted from delivering goods or services or any other major operations of a company. For example, manufacturing company that produce pet products will record the expenses associated with generating $100,000 in sales. The expenses would include salaries paid to the employees, cost of goods sold to manufacture the products, utility expenses associated with the manufacturing facility, etc. Losses are decreases in net assets of a company that resulted from incidental activities of a company, other than expenses that were incurred during the normal operations of a company or distributions to owners. For example, a user of the pet product that was manufactured by the company in our hypothetical example brought a lawsuit against the company. A company was ordered to pay $20,000 as a result of the lawsuit. This amount would be recorded as the loss on the income statement. References: Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2017). Financial accounting theory and analysis: Text and cases (12th ed.). Hoboken, NJ: Wiley. Classmate post # 2: Maurice Naylon As illustrated by Statement of Financial Accounting Concept (SFAC) No. 8, the primary purpose of financial reporting is to provide financial information about the entity that is useful to all current and potential stakeholders – investors, lenders, and other creditors. Of the four financial statements that comprise the heart of financial reporting, “the income statement is of primary importance […] as a measure of future cash flows, as a measure of management efficiency, and as a guide to the accomplishment of managerial objectives” (Schroeder et al, 2017, p. 164). SFAC No. 6 breaks down four elements on the income statement: revenues, gains, expenses, and losses. Revenues entail inflows from “delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations [italics added]” (Schroeder et al, 2017, p. 165). Simply put, revenues represent the funds received by a business for conducting its primary function. When Apple sells iPhones – a primary operation for the company – it receives revenues for those sales. Conversely, gains arise from “peripheral or incidental transactions of an entity” (Schroeder et al, 2017, p. 165). If Apple sold an office building it no longer needed and increased its net assets in the process, that increase would constitute a gain, as Apple is not in the business of selling real estate. Expenses and losses have a relationship to that between revenues and gains. Namely, expenses represent outflows or the using up of assets (or incurrence of liabilities) during a company’s central or primary operations. To extend the above analogy, the sub-components and raw materials used by Apple to create iPhones represent expenses, as they are incurred during the conduct of a central business operation. However, if Apple sold the same office building as above but decreased its net assets in the process, that decrease in assets would constitute a loss, as the company still is not in the business of selling real estate. References Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2017). Financial accounting theory and analysis: Text and cases (12th ed.). Hoboken, NJ: Wiley.