Class 2: Ch 3 Income Statement

Question 1

What is a typical operating cycle?

Answer 1

Buying goods and services from suppliers
paying suppliers and employees,
selling goods and services to customers and collecting and paying out cash

Question 2

What are operating activities

Answer 2

Are the day to day functions involved in running a business and are the primary source of revenues and expenses.

Question 3

What is a quarter

Answer 3

3 months

Question 4

What is an income statement what does it include

Answer 4

summarizes the financial impact of operating activities during the accounting period. Includes 3 main sections:
1. revenues
2. Expenses
3. Net income

Question 5

what is the time period assumption

Answer 5

divides the long life of a company into shorter periods, such as months, quarter and years

Question 6

what are revenues

Answer 6

are the amounts earned by selling goods or services to customers

Question 7

what are expenses

Answer 7

expenses are the costs of business necessary to earn revenues.

Question 8

what is Net income and what does it indicate

Answer 8

Is the excess of revenues over expenses. indicates the amount equity increases or decreases as a result of a companys operation

Question 9

Cash accounting

Answer 9

Just recognizes what is going on with your cash

Question 10

accrual accounting

Answer 10

reports revenues when they are earned and expenses when they are incurred, regardless of timing of cash receipts or payments

Question 11

revenue recognition principle

Answer 11

revenues should be RECOGNIZED when they are EARNED.
Recognized = revenues are measured and recorded in the accounting system
Earned = company fulfilled the obligation

Question 12

Deferred revenue

Answer 12

occurs when a business receives cash before goods or services are provided. it is a liability that represents a companys obligation to provide goods or services to customers in the future