Class_4_Income_Statement_Upload

Class_4_Income_Statement_Upload - Intro to Accounting &...

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W2261/4261 Zhang                                    Int 1 Intro to Accounting & Finance W2261/4261, Columbia University Lecture 4 Jan 25, 2007
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W2261/4261 Zhang                                    In 2 In Today’s Class: Income  Statement 1. Accounting periods 2. Accounting methods: cash and accrual bases 3. Measurement principles of accrual accounting 4. Preparing the income statement
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W2261/4261 Zhang                                    In 3 The Income Statement. It is about profitability of a firm. It reports the results (inflows & outflows of revenues & expenses) of operating activities over a period of time. Net income, or earnings, equals revenues minus expenses. Revenues measure the net assets that flow into a firm. Expenses measure the net assets that a firm consumes (outflows) in the process of generating revenues. Basic Income Equation: Net Income = Revenues - Expenses
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W2261/4261 Zhang                                    In 4 Income Statement.
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W2261/4261 Zhang                                    In 5 The balance sheet reports assets and financing of those assets at a point in time . The income statement reports revenues and expenses over a period of time . If you think about the balance sheet as a picture, then income statement is a movie. Two consecutive balance sheets are connected by the income statement. Retained Earnings is increased by net income and decreased by dividends.
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W2261/4261 Zhang                                    In 6 The Income Statement. We say that the income statement reports net income for a particular period of time. Now the question is: what is the “period of time”?
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W2261/4261 Zhang                                    In 7 The Accounting Period Income generating activity occurs almost continuously in modern firms. Financial reports are prepared at the end of time periods of uniform length, for example, months or quarters or years. Uniform time periods facilitate comparisons and analyses. Many companies use the end of the calendar year as the end of their accounting period. An exception: retail stores.
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W2261/4261 Zhang                                    In 8 Revenues -- Timing Purchase of Merchandise Sale Collection of Cash Operating Process A Purchase of Merchandise Sale Collection of Cash Operating Process B Purchase of Merchandise Sale Collection of Cash Operating Process C Year 1 Year 2 Year 3
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W2261/4261 Zhang                                    In 9 Two Approaches to Measure Operating  Performance Cash basis of accounting Revenues are recognized when cash is received
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This note was uploaded on 04/16/2008 for the course ECON 2261 taught by Professor Frankzu during the Spring '07 term at Columbia.

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Class_4_Income_Statement_Upload - Intro to Accounting &...

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