Please describe each of the following in your own words. PLEASE ANSWER IN YOUR O
ID: 2381093 • Letter: P
Question
Please describe each of the following in your own words. PLEASE ANSWER IN YOUR OWN WORDS, NO COPY AND PASTE FROM ONLINE SOURCES
a)
Cost of goods sold
b)
Gross Profit
c)
Operating Expenses
d)
Income from Operations
e)
Other Income and Expense
f)
Income Before Income Taxes and Income Tax Expense
g)
Net Income
h)
Earnings Per Share
i)
Discontinued operations
j)
Extraordinary items
k)
Statement of Cash Flows
l)
Independent Auditors' Report
Please describe each of the following in your own words. PLEASE ANSWER IN YOUR OWN WORDS, NO COPY AND PASTE FROM ONLINE SOURCES
a)
Cost of goods sold
b)
Gross Profit
c)
Operating Expenses
d)
Income from Operations
e)
Other Income and Expense
f)
Income Before Income Taxes and Income Tax Expense
g)
Net Income
h)
Earnings Per Share
i)
Discontinued operations
j)
Extraordinary items
k)
Statement of Cash Flows
l)
Independent Auditors' Report
Explanation / Answer
1. Cost of Goods Sold - costs you incur when you produce and sell the good (like materials, direct labor, etc.) when calculating: Beginning Inventory + Purchases = Cost of Goods Available for Sale, then deduct Ending Inventory to arrive at COGS
2. Gross Profit- difference between Revenue (net sales) and Cost of Goods Sold. Basically, it's like a "residual profit" after selling product and deducting the costs you had to produce it
3. Operating expense- all expenses that you incurred when performing/maintaining regular business operations. This includes selling expenses, general and administrative expenses.
4. Income from Operations - all the income you earned from the business' operations. So it's directly from running the business. It's also called operating income.
5. Other Income and Expense- This is also called Other revenue and expenses and it's that section in the income statement that has your other revenues/exp that you incurred OUTSIDE of your primary business activity. so for instance, you were renting out an office space to someone, so you're getting rental revenue/income, but it's not from selling the goods or providing services.
6. Income before income tax - this is all of your net income before the tax rate is applied.
7. Income Tax expense- Net income * Tax Rate (ex. 40%). it's how much tax you have expensed when you apply the tax rate to your net income,
8. Net income- well, in my own words, it's the sum of all your revenues less the cost of goods sold, then deduct all your expenses and losses. this is your income after discontinued operations, extraordinart items, and income taxes, have been accounted for.
9. Earnings per share (EPS) - (net income-preferred dividends)/average outstanding shares. This is basically how much profit you make for every outstanding share there is.
10. Discontinued Operations - something in your company's business that has been discontinued because it was abandoned, or disposed, etc. When you calculate your net income, you have income from continuing operations then income discontinued operations.
11. Extraordinary items - for something to be considered "extraordinary" in accounting (in the financial statements), it needs to be UNUSUAL and INFREQUENT. So for instance, you have losses because of a drought that occurred in a state that you live in that doesn't experience drought AT ALL, you have to account for that under extraodrinary items and disclose it in the notes. Remember, these must be unusual and infrequent.
12. Statement of Cash Flows - this shows how changes in the different accounts in the balance sheet and income statement affect cash. These changes could either increase or decrease cash. It shows the amount of cash that flows in and out of the business. A lot of companies use the accrual method of accounting, so what they report as cash may not necessarily be right. This statement show the activity of CASH.
13. Independent auditor's report- Well, you need an independent auditor to audit your financial statements to make sure that there isn't fraud (as stated in Sarbanes Oxley act of '02). The independent auditor's report just tests whether or not your accounting methods and report comply w/ GAAP.