The Income Statement Flashcards
Salaries are Real or Nominal Accounts?
Nominal
Prepaid Rent is a Real or Nominal Account?
Real
Rent Expense is a Real or Nominal Account?
Nominal
Purchases are Real or Nominal Accounts?
Nominal
Depreciation Expense is a Real or Nominal Account?
Nominal
Marketable Security is a Real or Nominal Account?
Real
It is an asset but if it had said expense then it would have been nominal
Insurance Expense is a Real or Nominal Account?
Nominal
COGAS =
Purchases + BI
Define purchases returns
Business owner returns something to the amnufacturer
What do you reduce in sales returns?
Sales
What do you reduce in sales return if the product is malfunctioning?
Purchases
Net Income =
Revenues - Expenses
Define Revenue
Cash or promises of cash that flow into the business as a result of operation
Exception to revenue = inflow of class?
Cash inflow comes from merchandise normally not sold by the business (depreciation on a truck or building)
Define expense
Cost that the business incurs to make sales or earn revenue
Includes all cost of operating the business
Net incomes shows?
The firm’s ability to earn profit to pay its debit
IMPORTANT TO CREDITORS
Difference between merchandising firms and service firms?
Inclusion of COGS (on the income statement of merchandising firms) which is subtracted from sales to get gross margin
Operating expenses are then deducted from gross margin to get net income
Services firms just have?
Operating expenses to take away from revenue (to get the net income)
Define Contra Account
A ledger account which is deducted from or offset against a related account in the financial statement
Examples of contra accounts?
Accumulated depreciation
Purchase returns and allowances
Sales returns and allowances
Income tax is?
An expense of the business
