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Ch03(6th)Post - Chapter F3 Chapter F3 Measuring Revenues...

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Measuring Revenues Measuring Revenues and Expenses and Expenses Chapter Chapter F3 F3
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3 - 2 1. Explain the concept of accrual accounting and why it is used. 2. Record revenue transactions using accrual accounting. 3. Record expense transactions using accrual accounting. 4. Identify and record adjusting entries at the end of a fiscal period. Objectives Objectives
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3 - 3 5. Prepare closing entries and financial statements at the end of a fiscal period. 6. Identify steps in the accounting cycle. Objectives Objectives
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3 - 4 Revenue is the amount a company expects to receive when it sells goods or services, and Expenses are the amount of resources consumed in the process of acquiring and selling goods and services.. Operating Activities Operating Activities Obj - 4
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3 - 5 Accrual accounting is a form of accounting in which revenues are recognize when they are earned and expenses are recognized when they are incurred. Obj - 1
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3 - 6 Accrued revenue is revenue recognized prior to the receipt of cash, while deferred revenue is revenue recognized after the receipt of cash. Revenue Transactions Revenue Transactions Obj - 2
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3 - 7 Revenue Transactions Revenue Transactions On February 12, 2007, Favorite Cookie Company sold boxes of cookies (cost $400) to a customer for $600 on credit. Mom’s Mom’s Mom’s Obj - 2
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3 - 8 Revenue Transactions Revenue Transactions ASSETS      = ASSETS      = LIABILITIES LIABILITIES         +   OWNERS’ EQUITY +   OWNERS’ EQUITY Date       Accounts Cash Other  Assets Contributed Capital Retained Earnings 2/12 Accts. Receivable 600 Sales Revenue 600 Accounts Receivable is an asset account that increases when good are sold on credit. Obj - 2
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3 - 9 Revenue Transactions Revenue Transactions ASSETS      = ASSETS      = Date       Accounts Cash Other  Assets Contributed Capital Retained Earnings 2/12 Accts. Receivable 600 Sales Revenue 600 2/12Cost of Goods Sold –400 Merchandise Inv. –400 The second entry records the cost of the cookies and reduces the inventory. LIABILITIES LIABILITIES         +   OWNERS’ EQUITY +   OWNERS’ EQUITY Obj - 2
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3 - 10 Revenue Transactions Revenue Transactions This sale transaction is linked to a second transaction that occurs on March 10 when the customer pays for the goods. Obj - 2
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3 - 11 Revenue Transactions Revenue Transactions ASSETS      = ASSETS      = Date       Accounts Cash Other  Assets Contributed Capital Retained Earnings 3/10 Cash 600 Accts. Receivable –600 Revenue is not recognized at the time cash is received because it has already been recognized when goods were sold. LIABILITIES LIABILITIES         +   OWNERS’ EQUITY +   OWNERS’ EQUITY Obj - 2
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3 - 12 Linking Revenues and Cash through Accounts Receivable Accounts Sales Accounts Sales Date Cash Receivable Revenue Date Cash Receivable Revenue Feb. 12 600 600 Mar. 10 600 –600 Net results 600 0 600 Exhibit 1 Exhibit 1 Obj - 2
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3 - 13 Revenue Transactions Revenue Transactions On February 24, a customer paid $3,000 for an order in advance of receiving the cookies.
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