Ch03 Income - 3-1Chapter 3 – The Income Statement•Overview•Expanded Transaction Analysis Model•Accrual Accounting3-2What Does Net Income

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Unformatted text preview: 3-1Chapter 3 – The Income Statement•Overview•Expanded Transaction Analysis Model•Accrual Accounting3-2What Does Net Income Tell Users?•One of the most meaningful figures that a company reports•Significant measure of past performance•Indicates potential for future prospects3-3What Does Net Income Tell Users?“Shareholders of Brown-Foreman (BF.B) will drink to that closing gain of $2.57. First quarter earnings, $0.18, well above $0.69 last year and $0.19 better than expected and it was thanks largely to lower operating expenses. “9/2/093-4How is the Income Statement Prepared?What business activitiesaffect the income statement?How are these activitiesrecognized and measured?How are these activities reported on theincome statement?B&N sells a book to a customer?When should the sale be recognized and for how much?Where does the sale appear on the income statement?3-5Operating Cycle: Merchandiser3-6Expanded Transaction Analysis Model3-7Contributed Capital+Retained EarningsDebit-Credit+ Debit-Credit+ A = L + SEA = L + SEAssetsDebit+Credit-=LiabilitiesDebit-Credit+ 3-8Retained EarningsComponents of Retained EarningsRevenuesDebit-Credit+ ExpensesDividends3-9Preparing an Income Statement•Does it make sense to record all expenses and revenues in retained earnings?•How do you prepare an income statement?3-10Preparing an Income Statement•Add up each individual revenue and expense account:•Is this feasible for a company that may have millions of transactions?3-11Record revenues in a separate account.Recording RevenuesRevenuesCredit+ Retained EarningsDebit-Credit+ 3-12Recording Expenses and DividendsExpenses and DividendsRetained EarningsDebit-Credit+ Debit+Retained earnings is decreased with a debit: expenses and dividendsUse debits to record (increase) expenses and dividends3-13Expanded Transaction Analysis ModelExpenses and DividendsCredit+ RevenuesDebit+Retained EarningsDebit-Credit+ 3-14Recap of Debit and Credit RulesDebitCreditAssetsIncreaseDecreaseLiabilitiesDecreaseIncreaseStockholders’ EquityDecreaseIncreaseRevenues-IncreaseExpensesIncrease-DividendsIncrease-3-15Accrual Accounting3-16Cash Basis Accounting...
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This note was uploaded on 11/24/2009 for the course UGBA 102A taught by Professor Udpa during the Fall '07 term at University of California, Berkeley.

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Ch03 Income - 3-1Chapter 3 – The Income Statement•Overview•Expanded Transaction Analysis Model•Accrual Accounting3-2What Does Net Income

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