lec03 - Slide 1 Chapter 3 Operating Decisions and the...

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Unformatted text preview: Slide 1 Chapter 3: Operating Decisions and the Income Statement Slide 2 Learning Objectives 1. Describe a typical business operating cycle and explain the necessity for the time period assumption. 2. Explain how business activities affect the elements of the income statement . 3. Explain the accrual basis of accounting and apply the revenue and matching principles . 4. Apply transaction analysis to examine and record the effects of operating activities. 5. Prepare unadjusted financial statements . Slide 3 Slide 3 Elements on the Income Statement Losses Decrease in net assets from peripheral or incidental transactions and from all other transactions and events except those that result from revenues or investment by owners. Revenue Increases in assets or settlement of liabilities from delivering or producing goods, rendering services, or other activities that constitute the ongoing major or central operations. Expense Outflows or other using up of assets/or incurrence of liabilities from delivering or producing goods, rendering services, or other activities that constitute the ongoing major or central operations . Gains Increase in net assets from peripheral or incidental transactions and from all other transactions and events except those that result from revenues or investment by owners . Revenues- Expenses (+Gains- Losses) = NI Slide 4 Slide 4 Revenues Restaurant and commissary sales 884,000 $ Franchise royalties and development fees 117,000 Total revenues 1,001,000 Costs and expenses Cost of sales 425,000 Salaries and benefits expense 164,000 General and administrative expenses 314,000 Total costs and expenses 903,000 Operating income 98,000 Other revenues and gains (expense and losses) Investment income 1,000 Interest expense (3,000) Income before income taxes 96,000 Income tax expense 33,000 Net income 63,000 $ Earnings per share 1.96 $ Papa John's International, Inc. and Subsidiaries Consolidated Statement of Income For the Year Ended December 31, 2006 (dollars in thousands) Papa John’s Primary Operating Activity is selling pizza and selling franchises. Core operating Activities Peripheral Activities Earnings Per Share= Net Income Weighted Average Number of Common Shares Outstanding Slide 5 Slide 5 The Operating Cycle Purchase products or supplies on credit. Deliver product or provide service to customers on credit. Pay suppliers. Receive payment from customers. Begin Objective: turn cash into more cash. Slide 6 Slide 6 The Time Period Assumption To meet the needs of decision makers (investors, creditors, managers etc.), we report financial information for relatively short time periods (monthly, quarterly, annually)....
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lec03 - Slide 1 Chapter 3 Operating Decisions and the...

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