Chapter 6 Analyzing Analyzing Operating Operating Activities Activities REVIEW Income is the residual of revenues and gains less expenses and losses !et income is measur measured ed using using the accrual accrual "asis "asis of account accountin ing g Accrual ccrual account accounting ing recogn recognize izes s revenues and gains #hen earned$ and recognizes expenses and losses #hen incurred %he income statement &also referred to as statement of operations or earnings' reports net income during a period of time %his statement also reports income components(( revenu revenues$ es$ expense expenses$ s$ gains$ gains$ and losse losses s We analy analyze ze incom income e and its componen components ts to evaluate company performance, assess risk exposures, exposures, and predict amounts, timing, While e )"ot )"otto tom m line line)) net net inco income me fram frames es ou our r and uncert uncertain ainty ty of future future cash cash flows flows Whil analysis$ income components provide provide pieces of a mosaic revealing the economic portrait of a comp compan any y %h %his is chap chapte terr exami examine nes s the the anal analys ysis is and and inte interp rpret retat atio ion n of inco income me components We consider current reporting re*uirements and their implications for our analysis of income components We descri"e ho# #e might usefully apply analytical ad+ustments to income components and related disclosures to "etter our analysis We direct special attention to revenue recognition and the recording of ma+or expenses and costs ,urther use and analysis is made of income components in -art %hree of the "oo.
