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Lecture05 - Lecture 5 Accounting for Income Revenues and...

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1 Lecture 5 Accounting for Income: Revenues and Expenses
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2 Admin Stuff My Office Hours – Wednesdays 2:35-4:00pm Marshall Vance’s OH’s: – Monday and Wednesdays 11:00am - 12:00noon Homework #3 due Thursday
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3 Review Accrual accounting vs. Cash basis of accounting Accounts Receivable (A/R) and Accounts Payable (A/P) capture much of the difference between a company’s sales and expenses and the associated cash inflows and outflows Criteria for revenue to be “recognized” on the income statement Matching principal for associating expenses with revenue
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4 Goals of Today’s Class Finish discussion of revenues, expenses and the income statement Discuss the accounting cycle • Examples
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5 Income Statement T-Accounts “Temporary” T-Accounts At the end of the period, I/S T-accounts are closed back into the retained earnings. all revenues and gains must eventually be included as increases in RE and all expenses and losses must eventually be included as decreases in RE
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6 Revenue – Debit or Credit? Revenue represents an increase in Retained Earnings, a Shareholders’ Equity account, therefore increases in revenues are recorded as credits . Expense – Debit or Credit? An expense represents a decrease in Retained Earnings, therefore increases in expenses are recorded as debits . Income Statement T-Accounts
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7 Increases In Assets Decreases In Liabilities Decreases in CS and APIC Increases in Expenses (Decreases in Revenues) Losses Increases in Dividends Debit Entries List of Debit and Credit Entries Decreases in Assets Increases in Liabilities Increases in CS and APIC (Decreases in Expenses) Increases in Revenues Gains (Decreases in Dividends) Credit Entries
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8 The Accounting Cycle What is Accounting Cycle?
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