3 - Income Statement Flashcards
Profit
the increase in O.E. that results from the successful operation of a buisness
Why does profit increase O.E.?
A buisness sells ______ and ________.
goods, services
Revenue
money earned from the sale of goods or services
Expense
costs of items or services used to operate a buisness
must generate revenue in order to be considered an expense
Net Income
occurs when total revenue is greater than total expenses
{ Net Income = R - E | R > E }
Net Loss
occurs when total expenses are greater than total revenue
- record magnitude lost in ( ) w/ $ outside ()
{ Net Loss = R - E | E > R }
Income Statement
a formal financial statement that:
* summarizes the revenues and expenses
* determines net income/loss for a specific period of time
Time-Period Principle
principle which requires the definition and use of the same period of time for each accounting period
accounting period consistent?
Matching Principle
principle which states expenses should be recorded and matched with the revenue they help to generate during the same accounting period
Accrual Basis of Accounting
matching revenue earned with expenses incurred to produce that revenue during the accounting period
Revenue Recognition Principle
principle which states that the revenue is recognized at the time the revenue is definitely earned
Revenue __________ owner’s equity.
increases
Cash Basis of Accounting
recognizes revenue and expenses only when cash changes at hand
(doesn’t record it when money is still acounted in A/R … my guess)
Revenue is a ____________ because it _________ Owner’s Equity, which _______ on the ________ side.
credit account, increases
increases, credit
Expenses are a ___________ because it __________ Owner’s Equity, which ________ on the ________ side
debit account, decreases
decreases, debit
