Question

Distinguish between the modified all-inclusive income statement and the current operating performance income statement. According to present generally accepted accounting principles, which is recommended? Explain.

Short answer

All the irregular, extraordinary, and regular business gains and losses are recorded in the modified all-inclusive income statement. However, the current operating performance income statement includes only regular business gains and losses. GAAP recommends a modified all-inclusive income statement.

Step-by-step solution

Meaning of GAAP

Thestated guidelines that help in recording and reporting financial statements are known as GAAP (Generally Accepted Accounting Principles).

Difference between all-inclusive and current operating performance income statement

The modified all-inclusive income statement includes all the income, including irregular itemslike unusual and infrequent gains and losses, discontinued operations, non-controlling interest, and earnings per share. The current operating performance income statement includes only recurring and regular revenue and expenses items.

Explanation for recommendation according to GAAP

According to GAAP, the all-inclusive income statement is recommended to meet certain standards for prior period adjustments and then be shown as the adjustments to the beginning balance in the retained earnings statement.