Chapter 3 – Operating Deiciosna and the Income Statement How do business activities affect the income statement • Operating cycle – cash-to-cash cycle. Time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers • Operating cycle continuously repeated • Time period assumption – indicates that the ong life of a company an be reported in shorter time periods • Revenues – increases in assets or sett;ements of liabilities from ongoing operations • Multiple step – uses operating income and income before taxes • If a customer pays for something in advcnace, a liability account is created and it is not relieved into the company provides the promised goods • Expenses – decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period • Investment income or revenue, and interest expense are peripheral transactions. • Gains – increase sin asset s or decreases in liabilities from peripheral transactions
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