ACCT101-Handout03

ACCT101-Handout03 - - There is persuasive evidence of an...

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Acct 101 L12, L13, L16 Handout #03 Operating Decisions and the Income Statement ± Operating cycle ± Time period assumption The long life of a company can be reported over a series of shorter time periods. ± Elements on the Income Statement Ongoing operations Revenues Costs/ expenses Peripheral transactions Gains Losses A = L + E C.C. R.E. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. REV. EXP. Dr. Cr. Dr. Cr. 1
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Acct 101 L12, L13, L16 Handout #03 2 ± Cash basis accounting (Not GAAP) Assets, liabilities, revenues, and expenses are recognized when cash is paid or received. ± Accrual basis accounting (GAAP) Assets, liabilities, revenues, and expenses are recognized when the transaction that causes them occurs, not necessarily when cash is paid or received. Q. When are revenues earned and when are expenses incurred? Revenue principle : revenues are recognized when - Delivery has occurred or services have been rendered.
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Unformatted text preview: - There is persuasive evidence of an arrangement for customer payment. - The price is fixed or determinable. - Collection is reasonably assured. • Matching principle : Resources consumed to earn revenues in an accounting period should be recorded in that period, regardless of when cash is paid. 1 L12, L13, L16 Handout #03 3 Ex. Revenues $500 earned in January 1/10 1/15 Revenue earned 1/25 Case 1 Received cash on 1/10 Case 2 Received cash on 1/15 Case 3 Received cash on 1/25 Ex. Expenses $300 occurred in January 1/2 1/11 Expense incurred 1/20 Case 1 Cash paid on 1/2 Case 2 Cash paid on 1/11 Case 3 Cash paid on 1/20 Acct 10 Acct 101 L12, L13, L16 Handout #03 ± E 3-8 (p. 146) 1. Dr. Cr. 4 Acct 101 L12, L13, L16 Handout #03 2. Accounts Receivable Beg. bal. 13 P 3-2 (p.151) Additional requirement: Prepare an income statement. Dr. Cr. 5 Acct 101 L12, L13, L16 Handout #03 6...
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ACCT101-Handout03 - - There is persuasive evidence of an...

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