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Chapter 3 - Chapter 3 Class Notes Reporting Operating...

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Income Statement (I/S) Components Revenues are the __________________________ to customers. Expenses are the costs of doing business to ________________. Net income (loss) is the difference between ____________ and ________________. To ensure net income provides a good measure of financial success, it must include revenues and expenses only of the current period. The _________________________ assumes that the long life of a company can be divided into shorter time periods, such as months, quarters, and years. Cash vs. Accrual Accounting Chapter 3 Class Notes Reporting Operating Results on the Income Statement Compiled by: Janice H. Fergusson, CPA Certain Materials used with permission of The McGraw-Hill Companies, Inc. See page 90 of textbook
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ACCT 225 – Fall 2008 Page 2 of 8 Chapter 3 Cash basis accounting is not allowed under GAAP. Cash basis records revenues when cash is ___________ and expenses when cash is _____________. This doesn’t measure financial performance well when transactions are completed using credit rather than cash. Accrual basis accounting is required by GAAP. The ____________________________ principle requires that revenues be recorded when they are___________, regardless of the timing of the cash receipts. Revenues are earned when _________________________. The _________________ principle requires that expenses be recorded in the same period as the revenues they help generate, regardless of the timing of the cash payments.
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