The%20Income%20Statement%20Jan%2013%202010

The%20Income%20Statement%20Jan%2013%202010 - The Income...

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The Income Statement
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Dr. Mimi Alciatore 2 Accrual-Basis Accounting Revenue Recognition Concept: This Principle Determines When Revenues Can Be “ Recognized ” (Recorded on the Profit and Loss Statement) Recognize Revenue (Turnover) When We “Earn” It
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Dr. Mimi Alciatore 3 The Most Common Point of Revenue Recognition Is at the Time of Sale: When Services or Goods Are Provided to the Buyer For Sales of Goods, This Is Typically When the Title of the Product Transfers To the Customer
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Dr. Mimi Alciatore 4 Remember: When we Earn the Revenue Is Not Necessarily When We Get the Cash From Sales. It Could Be Before or After Receive Cash: Sell on Credit and Get Accounts Receivable
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Dr. Mimi Alciatore 5 Accrual-Basis Accounting: The Matching Concept Match Expenses with the Revenues They Helped Produce Recognize Expenses When Incurred
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Dr. Mimi Alciatore 6 The Matching Concept Recognizing Expenses When Incurred This Is Not Necessarily When We Pay Cash for Inventory, etc. You May Have Already Paid for the Inventory In a Prior Period or May Pay in the Next Period .
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Dr. Mimi Alciatore 7 Accrual Versus Cash Basis Accounting: Your firm is constructing a building for a Price of $5 million , Which you will receive on January 1st of Next year. You will also pay for the $2 million of Project Costs (salaries, materials, etc.) next January. The Building is Completed at December 28th this year. What Is Your Firm’s Earnings for This Year If It Uses: Cash-Basis Accounting? $ ? Accrual-Basis Accounting (per GAAP)? $ ?
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Dr. Mimi Alciatore 8 Profit & Loss (Income Statement) Terms Turnover (Revenue) & Gains Increase Equity (A - L) = E Expenses & Losses Decrease Equity
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Dr. Mimi Alciatore 9 P & L (Income Statement) Terms Revenues & Expenses Are Gross Concepts (Single Amounts) Gains & Losses Are Net Concepts in that a Cost Basis Is Subtracted from an Inflow (Differences Between 2 Numbers)
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Dr. Mimi Alciatore 10 (Income Statement) Terms Revenue (or Sales) “The Top Line” Analyze Changes in Revenue Over Time (Up or Down)
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Dr. Mimi Alciatore 11 Changes In Revenue Try to Determine How Much of the Change in Total Revenue Is Due to: Change In Quantities Sold Change in Sales Price
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Dr. Mimi Alciatore 12 (Income Statement) Terms Gross Profit (or “Gross Margin”) = Revenue - Cost of Goods Sold Expense Profit and Loss Statement Revenue 100 Cost of Goods Sold (60) Gross Profit 40
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Dr. Mimi Alciatore 13 Gross Profit Look for Changes Over Time for a Given Company
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Dr. Mimi Alciatore 14 Gross Profit For Example, Look at Gross Profit ÷ Revenue For Company A in Years 9 and 10 Company A: Year 9 Year 10 Revenue 100 100 Cost of Goods Sold (60) (50) Gross Profit 40 50 Gross Profit/Revenue 40% 50%
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Dr. Mimi Alciatore 15 Gross Profit Look for Differences in a Firm’s Gross Profit for a given Fiscal Year Compared to Its Competitors
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Dr. Mimi Alciatore
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The%20Income%20Statement%20Jan%2013%202010 - The Income...

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