Income statement Flashcards
Income Statement Equation
Net Income = Revenue - Expenses
Net income also “earnings” & “net profit” .
Income Statement
Reports increase in SE due to operations over period of time
Accrual Accounting
Recognition of revenues & expenses are tied to business activities, NOT cash flows.
All Income Statements Based on?
Accrual Accounting Principles
Net Income /=?
Net Cash Flow ( necessarily )
Revenues
Increase in SE (not necessarily cash) from providing goods/services
Can use invoice as part of payment?
Yes
When given invoice can____ _____……
Book revenue before receive cash
[Make A/R entry for what customer owes]
Expenses
• decrease in SE (not necessarily cash arising process generating revenue)
Expenses recognized when (ii)?
i) Product Costs:
Related Revenues are
RECOGNIZED
Or
ii) Period Costs & Unusual Events:
Expenses incurred difficult match w/ Revenues
Product Costs
Direct costs of production: raw materials, labour part of, factory costs [overhead]
- Stays in Inventory until goods sold
> when sold is EXPENSE & leaves Inventory
Period Costs & Unusual Events (Incurred)
Selling, General & Administrative costs.
Indirect part of production but part cost running business:
- R&D
- Sales Force
- Marketing Staff
- Human Resources
- Top Management
Manufactured goods product/period costs? & stay in q until goods x. When x leaves q & becomes d.
Product cost (direct production cost)
Q: Inventory
X: Sold
D: an Expense
Recognize people working for you (period cost) as an___ @____ _____ ____ ____.
Expense @ point people working for you.
Underlying Recognition Concept (2)
1) Matching Principle (Product or Period Costs)
2) Conservatism Principle (unusual events)
(i) Recognize Anticipated LOSSES IMMEDIATELY
(ii) Recognize Anticipated GAINS ONLY WHEN REALIZED
