CH 7: 7 Operating Decisions Flashcards
expenses count as
SE
operating cycle
Begins when the company receives good to sell, continues when company pays for it and sells to customers and ends when customers pay for the goods with cash
is accruel basis required by gaap
yes
in the accruel basis when is things recorded
Rev- revenue is recognized when goods and services are provided to customers
Exp- exp recognized win the same period with revenues that they relate to regardless of cash is paid
Operating activities
revenue or expenses relating to a companies daily activities
Operating revenue
amts earned and recorded from companies daily activities (selling goods)
Operating expenses
costs of operating the business to earn revenue
income from operations
operating revenue-operating expenses
what is other activities on the income statement
rev/exp from activities not central to ongoing operations and recorded separately as other items
Interest expense, gains/losses, sale of investments, etc
Income/Loss Before Taxes or Pretax Income
Income from operations +/- other activities
Income tax expense is written as
a seperate item
Earnings per share
ratio is used to evaluate companies operating performance
Net income/weighted avg number of shares of common stock
revenues
credit balance (inc assets/dec lia)
expenses
debit balance (dec assets/inc lia)
net income
rev-exp
Gains peripheral
(inc assets/dec lia)
Losses peripheral
(dec assets/inc lia)
gains p- losses p=
net income
Unearned revenue
customer payments made in advance before the revenue earned creates unearned revenue
Revenue is recognized (2)
When the company transfers promised goods/services to customers
in the amt expected to be received
Five steps to recognize revenue
Identify the contract btw the company and customer
Identify sellers performance obligations (promised goods and services)
Determine transaction price
Allocate the transaction price to the performance obligations
Recognize revenue when each
performance obligation is satisfied
when is revenue recorded
when the good is delivered
when is expense recorded
during the transaction
DEA
dividends
expenses
assets
(debit )
LER
liabilities
equity
revenue
(credits)
Net profit margin
net income/operating revenue
A rising net profit means
more efficient management of sales and expenses