Chapter 3 Lecture 1 - Chapter3Lecture1

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Chapter 3 Lecture 1 The most frustrating aspect of teaching on-line is that I am Italian.  Italians like to  talk and I can’t just talk to all of you at one time! If we could all be together for 1 hour, I could cover the important parts of  chapters 3. .  So the following is my short version of what is important in this  chapter OBJECTIVE 1: Define  net income  and its two major components,  revenues  and  expenses. Earning a   profit   is an important goal of most businesses. One of the major  functions of accounting is to measure and report a company’s success or failure  in achieving this goal. This is done by means of an income statement. Net  income   is   the   net   increase  in   stockholder’s  equity   resulting  from  the  operations   of   the   company.   Net   income   results   when   revenues   exceed  expenses, and a  net loss  results when expenses exceed revenues. Revenues   are   the   increases   in   stockholders’   equity   resulting   from   selling  goods, rendering services, or performing other business activities. Examples of  revenue accounts are Sales (the account used when merchandise is  sold),  Commissions Earned, and Fees Earned.  Expenses  also described as the cost of doing business or as expired costs, are  the decreases in stockholders’ equity resulting from the costs of goods and ser-
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vices used in the course of earning revenues. Examples of expense accounts are  Telephone Expense, Wages Expense, and Advertising Expense. A. Net income is the excess of revenues over expenses; net loss is the reverse. B. Revenues are the increases in stockholders’ equity resulting from selling  goods, rendering services, or performing other business activities. C. Expenses are the decreases in stockholders’ equity resulting from the costs of  goods and services used in the course of earning revenues.            Now for some new terms and your first real introduction to accounting  theory or what are usually referred to as accounting principles. For me these  are  the  guidelines  that   help  in   all   decision   making.  First   is  the  issue   of  continuity which  addresses the difficulty of allocating certain expenses and  revenues over several accounting periods when one cannot be certain how  long the business will survive. Unless there is evidence to the contrary (such  as an imminent bankruptcy), the accountant assumes the business is a  going  concern —that it will continue to operate indefinitely. This is known as the  going concern principle. Another difficult accounting issue is the assignment of revenues and 
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This note was uploaded on 02/10/2011 for the course ACCOUNTING 201 taught by Professor Notsure during the Spring '11 term at Edmonds Community College.

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Chapter 3 Lecture 1 - Chapter3Lecture1

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