Income Statement-S

Income Statement-S - CORPORATE FINANCIAL REPORTING The...

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· 1 CORPORATE FINANCIAL REPORTING The Income Statement
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M EASURING I NCOME Economist’s approach Accountant’s approach Cash basis Accrual basis 2 Income Statement
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R EVENUE C ASH V S. A CCRUAL CASH BASIS: Revenue represents an increase in CASH as a result of providing goods or services to customers. ACCRUAL BASIS: Revenue is an increase in NET ASSETS (assets - liabilities) as a result of providing goods or services to customers. 3 Income Statement
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R EVENUE C RITERIA F OR C ASH A ND A CCRUAL B ASIS Cash basis: to show revenue on the income statement the company must have received cash from its customer. 4 Income Statement
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R EVENUE C RITERIA F OR C ASH A ND A CCRUAL B ASIS Accrual basis-the SEC says 4 criteria must be met: 1. there is persuasive evidence of an arrangement, 2. delivery has occurred or services have been rendered, 4. collectability is reasonably assured. 5 Income Statement
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EVENUE C RITERIA F OR C ASH A ND A CCRUAL B ASIS We could condense those into two criteria: 1. The company has received a measurable asset from the customer (SEC’s criteria 2. The revenue is earned - meaning that the company has done what the customer is paying it to do (SEC’s criterion 2). 6
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This note was uploaded on 05/31/2008 for the course MBAC 6080 taught by Professor Vossen during the Spring '08 term at Colorado.

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Income Statement-S - CORPORATE FINANCIAL REPORTING The...

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