Class 2: Ch 3 Income Statement Flashcards
What is a typical operating cycle?
Buying goods and services from suppliers
paying suppliers and employees,
selling goods and services to customers and collecting and paying out cash
What are operating activities
Are the day to day functions involved in running a business and are the primary source of revenues and expenses.
What is a quarter
3 months
What is an income statement what does it include
summarizes the financial impact of operating activities during the accounting period. Includes 3 main sections:
1. revenues
2. Expenses
3. Net income
what is the time period assumption
divides the long life of a company into shorter periods, such as months, quarter and years
what are revenues
are the amounts earned by selling goods or services to customers
what are expenses
expenses are the costs of business necessary to earn revenues.
what is Net income and what does it indicate
Is the excess of revenues over expenses. indicates the amount equity increases or decreases as a result of a companys operation
Cash accounting
Just recognizes what is going on with your cash
accrual accounting
reports revenues when they are earned and expenses when they are incurred, regardless of timing of cash receipts or payments
revenue recognition principle
revenues should be RECOGNIZED when they are EARNED.
Recognized = revenues are measured and recorded in the accounting system
Earned = company fulfilled the obligation
Deferred revenue
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
where does revenue go under the assets = liability + SE equation
Revenues increase Net income, which increases retained earnings = revenues are recorded with credit, just like all increases in shareholders equity
