FAR, Financial Accounting and Reporting

Sources for Earnings Per Share

Last reviewed 2026-10-06

The standards and authorities behind PocketCPA's FAR lessons on Earnings Per Share. The topic rests on ASC 260.

About this topic

Earnings per share turns a whole year of profit into one number per share. Investors use that number to compare one company against another, and to compare a company against its own past.

That is why the FASB gives EPS its own presentation Subtopic rather than folding it into the general income statement guidance.

Key points

Basic EPS is income available to common stockholders divided by weighted-average common shares outstanding.
Diluted EPS adds potentially dilutive securities using the treasury stock method for options and the if-converted method for convertibles.
Stock dividends and splits are applied retroactively to the weighted-average share count for all periods presented.
An antidilutive security increases EPS and is excluded from the diluted calculation.

What the lessons cover

Basic EPS: the core formula
The numerator: income available to common stockholders
The denominator: weighted-average shares, splits, and dividends
Diluted EPS: the framework (ASC 260-10-45-16)
Options and warrants: the treasury stock method (ASC 260-10-45-22 through 45-27)
Convertible securities: the if-converted method (ASC 260-10-45-40)
Antidilution and sequencing (ASC 260-10-45-18 through 45-20)
Participating securities and disclosure (ASC 260-10-45-59A through 45-70)
Variable denominators and share settlement (ASC 260-10-45-21A)

Authoritative references

ASC 260-10-15-2, scope: entities that have filed, or are in the process of filing, to sell securities in a public market.
ASC 260-10-25-1, 260-10-30-1 and 260-10-35-1, a down round feature: when triggered, the value of the effect is deducted as though it were a dividend, measured immediately after the trigger, recognized each time it is triggered and never remeasured or amortized.
ASC 260-10-45-2, 45-3 and 45-5, presentation: EPS for income from continuing operations and for net income, which may sit on the face of the income statement or in the notes, and measures such as book value per share, which may be disclosed only in the notes.
ASC 260-10-45-10 and 45-11, basic EPS: income available to common stockholders over the weighted-average common shares outstanding, after preferred dividends.
ASC 260-10-45-12B and 45-15, the deduction of the down round effect and of a measure that is in substance a dividend, in the same place as preferred dividends.
ASC 260-10-45-16 through 45-18, diluted EPS: the framework, the exclusion of antidilutive securities, and the rule that the securities that pass the control-number test apply to every other EPS line.
ASC 260-10-45-19 and 45-20, the loss case, where diluted EPS equals basic EPS.
ASC 260-10-45-21A, the diluted denominator where the number of shares that may be issued is variable, under the treasury stock and if-converted methods alike.
ASC 260-10-45-22 through 45-27, options and warrants under the treasury stock method, including the buyback price at 45-23(b).
ASC 260-10-45-40, convertible securities under the if-converted method.
ASC 260-10-45-44 and 45-45, contingently convertible instruments included if dilutive whether or not the market price trigger has been met, and the effect of the holder's election regardless of past settlement.
ASC 260-10-45-45A and 45-46, the rebuttable presumption of share settlement, preserved only for liability-classified share-based payment awards after ASU 2020-06.
ASC 260-10-45-48 through 45-57, contingently issuable shares, which turn on whether the conditions for issuance are currently satisfied.
ASC 260-10-45-59A through 45-70, participating securities and related disclosure.
ASC 260-10-50-1, the reconciliation of the numerators and denominators of the basic and diluted computations.
ASC 260-10-55-4 and 55-5, the average market price: monthly averages usually suffice, and widely fluctuating prices call for an average of highs and lows.
ASC 260-10-55-12, retroactive adjustment of share counts for a stock dividend or split.
ASC 260-10-55-50, the four quarters' EPS figures need not sum to the annual figure.
ASC 260-10-55-57, Example 4, the order of entry of securities by their effect on EPS.
ASC 260-10-55-71, convertible bonds, participating warrants, and participating share-based payment awards.
ASC 260-10-55-84A through 55-84E, shares settled on the average market price, and instruments whose principal and premium are both settleable in shares.
ASC 260-10-55-87, the zero-not-negative treatment of an antidilutive result in a single quarter.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.