Chapter 3 Test 1 Flashcards
Income Statement
Revenues or Sales
A measure of the assets received in exchange for goods sold and services rendered.
Cost of Goods Sold
the cost of products sold
Selling, General, and Administrative
costs incurred to sell products and services as well as costs of administration i.e. rent, salaries, salesforce
Research and Development Expense
costs incurred to create and develop new products, processes, and services,
Advertising Expense
costs incurred with the goal of increasing sales by attracting new customers or inducing existing customers to increase their purchases.
Interest Expense
the cost of using borrowed funds
Interest Income
income earned on amounts lent to others or from investments in interest yielding securities.
Income Tax Expense
federal, state, and local taxes levied on income.
net revenues are?
all revenues calculated on the income statement
expenses are
net assets outflows or going out.
Net Revenues - Expenses =
Net gain or net loss
How are income statement s linked with balance sheet?
Retained Earnings (begining bal Yr 6) + Net Income - Divdends =Retained Earnings (ending bal for next year)
Liabilities + Contr. Cap + Retained Earnings Beg Pr. + Rev - Exp - Div
= Assets
Net Income =
Retained Earnings at the end of period - Retained Earn. Beg Pd. + Div
The purpose of the income statement is
see the performance for the period and record all rev and expenses directly from the retained earnings
Shareholder Equity T Account
(Debit/Decreases) Expenses, Dividends/(Credit/Increases) Revenues, Issues of Capital Stock
Posting Process
transferring the information in journal entries to the balance sheet and income accounts affected.
Adjusting Journal Entries
recording entries that result from the passage of time at the end of the accounting period.
Contra Account
an account that accumulates subtractions from another account
Closing Process
involves reducing to zero the balance in each income statement account by:
- debiting the revenue accounts and crediting retain earnings for the amount in the rev. account
- Crediting the expense accounts and debiting retained earnings for the amounts in the expense accounts
Direct Method of preping Statement of Cash Flows
straight forward listing of the sources and uses of cash from operatiing activities , as one would understand and identify the transactions
Indirect Method of Preping Statement of Cash Flows
reconciles net income to cash flows from operations by adjusting net income for noncash income statement components.
