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Ch03 - Income Statement

Ch03 - Income Statement - 3-1 Chapter 3 The Income...

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3-1 Chapter 3 – The Income Statement Overview Expanded Transaction Analysis Model Accrual Accounting
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3-2 What Does Net Income Tell Users? One of the most meaningful figures that a company reports Significant measure of past performance Indicates potential for future prospects
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3-3 What 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. “ 9/2/09
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3-4 How is the Income Statement Prepared? What business activities affect the income statement? How are these activities recognized and measured? How are these activities reported on the income 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?
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3-5 Operating Cycle: Merchandiser
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3-6 Expanded Transaction Analysis Model
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3-7 Contributed Capital + Retained Earnings Debit - Credit + Debit - Credit + A = L + SE A = L + SE Assets Debit + Credit - = Liabilities Debit - Credit +
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3-8 Retained Earnings Components of Retained Earnings Revenues Debit - Credit + Expenses Dividends
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3-9 Preparing an Income Statement Does it make sense to record all expenses and revenues in retained earnings? How do you prepare an income statement?
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3-10 Preparing an Income Statement Add up each individual revenue and expense account: Is this feasible for a company that may have millions of transactions?
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3-11 Record revenues in a separate account. Recording Revenues Revenues Credit + Retained Earnings Debit - Credit +
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3-12 Recording Expenses and Dividends Expenses and Dividends Retained Earnings Debit - Credit + Debit + Retained earnings is decreased with a debit: expenses and dividends Use debits to record (increase) expenses and dividends
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3-13 Expanded Transaction Analysis Model Expenses and Dividends Credit + Revenues Debit + Retained Earnings Debit - Credit +
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3-14 Recap of Debit and Credit Rules Debit Credit Assets Increase Decrease Liabilities Decrease Increase Stockholders’ Equity Decrease Increase Revenues - Increase Expenses Increase - Dividends Increase -
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3-15 Accrual Accounting
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