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Analyzing Financial Statements > Other Distortions
Other Distortions
• Discrepancies
• Extraordinary Gains and Losses
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Analyzing Financial Statements > Other Distortions
Discrepancies
• At the end of each month when you get your bank or credit card statement, you
will need to reconcile each account in your accounting program against the
statement.
• You will want to double check that you entered the correct starting and ending
balances for the account, and if you did, go back through all the transactions until
you find the problem. Then correct it and you can proceed with your reconciliation.
• In accounting, reconciliation refers to a process that compares two sets of records
(usually the balances of two accounts) to make sure they are in agreement.
• It depends on the type of discrepancies, most accounting discrepancies are due
to the lack of accuracy (decimal places) when breaking down a large figure.
Reconciliation of discrepancies
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Although more decimal places in your calculations can help solve discrepancies it
can look rather unsightly on a report.
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Analyzing Financial Statements > Other Distortions
Extraordinary Gains and Losses
• Extra gains or losses are nonrecurring, onetime, unusual, non-operating gains or
losses that are recorded by a business during the period.
• No items may be presented in the income statement as extraordinary items under
IFRS regulations, but are permissible under US GAAP. (IAS 1.87) The amount of
each of these gains or losses, net of the income tax effect, is reported separately
in the income statement.
• Examples of extraordinary items are casualty losses, losses from expropriation of
assets by a foreign government, gain on life insurance, gain or loss on the early
extinguishment of debt, gain on troubled debt restructuring, and write-off of an
intangible asset.
Income statement in accordance with IFRS
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Appendix
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Analyzing Financial Statements
Key terms
• extraordinary items unusual (abnormal) and infrequent things that impact the company
• non-operating Non-operating in accounting and finance is not related to the typical activities of the business or organization.
• reconciliation Process of matching and comparing figures from accounting records against those presented on a bank
statement.
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Analyzing Financial Statements
Income statement in accordance with IFRS
This income statement is a very brief example prepared in accordance with IFRS; no extraordinary items are presented.
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Wikipedia. "Income statement." GNU FDL http://en.wikipedia.org/wiki/Income_statement#Irregular_items View on Boundless.com
Analyzing Financial Statements
Reconciliation of discrepancies
Bank reconciliation statement
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Wikipedia. "Bank reconciliation." GNU FDL http://en.wikipedia.org/wiki/Bank_reconciliation View on Boundless.com
Analyzing Financial Statements
Which of the following is a step in performing an account
reconciliation?
A) All of these answers.
B) Check to make sure that you are using the correct beginning and
ending balances for the account.
C) Determine if the discrepancy is of sufficient magnitude to be corrected.
D) Review all transactions if you notice a discrepancy between third party
and in house records.
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Analyzing Financial Statements
Which of the following is a step in performing an account
reconciliation?
A) All of these answers.
B) Check to make sure that you are using the correct beginning and
ending balances for the account.
C) Determine if the discrepancy is of sufficient magnitude to be corrected.
D) Review all transactions if you notice a discrepancy between third party
and in house records.
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Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Analyzing Financial Statements
Which of the following gains and losses are extraordinary?
A) Loss from write off of inventory due to the company's inability to sell
the goods.
B) Gain from the early retirement of debt.
C) Loss from write down of receivables due to the customer refusing to
pay.
D) All of these answers.
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Analyzing Financial Statements
Which of the following gains and losses are extraordinary?
A) Loss from write off of inventory due to the company's inability to sell
the goods.
B) Gain from the early retirement of debt.
C) Loss from write down of receivables due to the customer refusing to
pay.
D) All of these answers.
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Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Analyzing Financial Statements
Attribution
• Wikipedia. "Income statement." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Income_statement#Irregular_items
• Wikipedia. "non-operating." CC BY-SA 3.0 http://en.wikipedia.org/wiki/non-operating
• Wikipedia. "Income statement." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Income_statement#Irregular_items
• Wikipedia. "Reconciliation (accounting)." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Reconciliation_(accounting)
• Answers.com. "How do you solve accounting discrepancies." CC BY-SA
http://wiki.answers.com/Q/How_do_you_solve_accounting_discrepancies#ixzz2CkYiQ7ha
• Wikipedia. "reconciliation." CC BY-SA 3.0 http://en.wikipedia.org/wiki/reconciliation
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