a) What are irregular items on the income statement?
b) How are irregular items presented on the income statement?
The income statement is a basic statement that shows an organization's profit or loss over a given period. It mainly consists of revenues and incomes of transactions operated within a company.
Answer and Explanation:
Irregular items on the income statement are those items that are not repetitive and depend on the nature of an organization's business. Details are found in either the Expense (Other Income) part or the part of the extraordinary item on the statement of income. Other Incomes refer to losses or gains ensuing from transactions indirectly interconnected to an organization?s principal business activities. On the other hand, extraordinary items refer to significant and vastly unforeseen losses or gains. Moreover, they are reported separately with intentions of stakeholders that can easily predict future cash flows.
Irregular items are presented in the income statement as follows;
- Extraordinary items. Losses and gains are unusual and are accounted for separately to avoid incorrect reflection on the organization's regular earnings. An item is listed net of tax only if it meets both tests.
- Discontinued operations are listed separately in the statement of income, thereby making it less likely to deceive the actual source of the organization's profit. It is reported in the income statement less tax after income from continued transactions.
- Unusual losses and gains. Losses and gains that are either infrequent or unusual but not both are known as extraordinary items. They are presented with ordinary recurring gains, losses, expenses, and revenues.
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from Accounting 101: Financial AccountingChapter 2 / Lesson 2