Mgmt_200_Spring_2008_Chap_3_Income_Statement(1,9)

Mgmt_200_Spring_2008_Chap_3_Income_Statement(1,9) - MGMT...

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MGMT 200 INTRODUCTORY FINANCIAL ACCOUNTING Operating Decisions and the Income Statement 1. The accounting cycle, the operating cycle 1. The Income Statement 1. Accrual accounting 1. Expanded transaction analysis 1. Total asset turnover ratio
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The Accounting Cycle During period Analyze transactions Record journal entries Post amounts to the general ledger At end of period Adjust revenues and expenses for unrecorded items Prepare financial statements Close revenue, expense, and dividend accounts and update the retained earnings account Repeat for next period
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The Income Statement The operating cycle Pay supplies for goods, sell goods to customers, collect cash from customers. Impact of the operating cycle on the balance sheet and income statement. Elements on the Income Statement Revenues, operating expenses Other revenues, expenses, gains, and losses Income tax expense Earnings per share
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Accrual Accounting Revenue Recognition Principle Revenues recognized when (a) realized or realizable, and (b) earned. Matching Principle Expenses incurred to generate recognized revenue be recognized in the same period. Net income (revenue – expenses) is NOT cash flow from operations.
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E3-2: Reporting Cash Basis versus Accrual Basis Income Ru’s Sports, Inc., sells sports equipment to customers. Its fiscal year ends on December 31. The following transactions occurred in 2008: a. Paid employees $54,200 in wages for the year; an additional $4,800 for 2008 wages will be paid in January 2009. b. Purchased $334,000 of new sports equipment inventory; paid $90,000 in cash and owed the rest on account. c. Sold sports equipment to customers for $410,000; received $340,000 in cash and the rest on account. The cost of the equipment was $287,000. d. Paid $7,200 cash for utilities for the year. e. Received $21,000 from customers as deposits on orders of new winter sports equipment to be sold to the customers in January 2009. f. Received a $680 bill for December 2008 utilities that will be paid in January 2009. Required: 1. Complete the following statements: 2. Which basis of accounting (cash or accrual) provides more useful information to investors, creditors, and other users? Why?
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E3-2: Reporting Cash Basis versus Accrual Basis Income
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Wall Street Journal: August 25, 2006
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E3-3: Identifying Revenues Revenues are normally recognized when the delivery of goods or services has occurred, there is persuasive evidence of an arrangement for customer payment, the price is fixed or determinable, and collection is reasonably assured. The amount recorded is the cash-equivalent sales price. The following transactions occurred in September 2009. Required:
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This note was uploaded on 11/22/2009 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue University-West Lafayette.

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Mgmt_200_Spring_2008_Chap_3_Income_Statement(1,9) - MGMT...

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