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Chapter 4: Q11Q (page 179)

What are the advantages and disadvantages of the single-step income statement?

Short Answer

Expert verified

Simplicity, understandability by a layperson, focuses primarily on revenues, and expenses are the various advantages. The absence of showing relationships between the cost of goods sold and sales is considered a disadvantage of a single-step income statement.

Step by step solution

01

Meaning of Single-Step Income statement

The single-step income statement is a format used to report the revenues and expenses of a company. It includes only two major groups, i.e., revenues and expenses.

02

Advantages and disadvantages of a single-step income statement

The advantages of a single-step income statement are this statement format is very simple to present and can be easily understood even by the layperson. This income statement only focuses on the net income calculated by deducting all the expenses from the revenues. The major disadvantage of the single-step income statement is the absence of showing the important relationship between sales revenue and the cost of goods sold. It also excludes the potential classifications such as income from operations, income after and before taxes, etc.

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Most popular questions from this chapter

Portman Corporation has retained earnings of \(675,000 at January 1, 2017. Net income during 2017 was \)1,400,000, and cash dividends declared and paid during 2017 totaled $75,000. Prepare a retained earnings statement for the year ended December 31, 2017.

What is earnings management?

Generally accepted accounting principles usually require the use of accrual accounting to “fairly present” income. If the cash receipts and disbursements method of accounting will “clearly reflect” taxable income, why does this method not usually also “fairly present” income?

Indicate where the following items would ordinarily appear on the financial statements of Boleyn, Inc. for the year 2017.

(a) The service life of certain equipment was changed from 8 to 5 years. If a 5-year life had been used previously, additional depreciation of \(425,000 would have been charged.

(b) In 2017, a flood destroyed a warehouse that had a book value of \)1,600,000. Floods are rare in this locality.

(c) In 2017, the company wrote off $1,000,000 of inventory that was considered obsolete.

(d) In 2014, a supply warehouse with an expected useful life of 7 years was erroneously expensed.

(e) Boleyn, Inc. changed from weighted-average to FIFO inventory pricing.

Which statement is correct regarding IFRS?

  1. An advantage of the nature-of-expense method is that it is simple to apply because allocations of expense to different functions are not necessary.
  2. The function-of-expense approach never requires arbitrary allocations.
  3. An advantage of the function-of-expense method is that the allocation of costs to the varying functions is rarely arbitrary.
  4. IFRS requires the use of the nature-of-expense approach.
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