LN03-ch3-AFM101s10

LN03-ch3-AFM101s10 - Chapter 3 Operating Decisions and the...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Financial Accounting, Third Canadian Edition 3-1 Chapter 3 Operating Decisions and the Income Statement
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Financial Accounting, Third Canadian Edition 3-2 How do business activities affect the income statement? How are these activities recognized and measured? How are these activities reported on the income statement? Business Background
Background image of page 2
Financial Accounting, Third Canadian Edition 3-3 Purchase products or supplies on credit (on account). Deliver product or provide service to customers on credit (on account). Pay suppliers. Receive payment (cash) from customers. Begin The Operating Cycle The operating cycle The operating cycle is the time it takes for a company to pay cash to suppliers, sell those goods and services to customers, and collect cash from customers.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Financial Accounting, Third Canadian Edition 3-4 Periodicity: The long life of a company can be reported over a series of short time periods. Recognition Issues: When should the effects of operating activities be recognized (recorded)? (avoid managers’ manipulation) Measurement Issues: What amounts should be recognized? Underlying Accounting Assumptions
Background image of page 4
Financial Accounting, Third Canadian Edition 3-5 To meet the needs of decision makers, we report financial information for relatively short time relatively short time periods periods (monthly, quarterly, annually). 2001 2002 2003 2004 2005 2006 2007 2008 Life of the Business Life of the Business Annual Accounting Periods The Periodicity Assumption
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Financial Accounting, Third Canadian Edition 3-6 Earnings per share Results of continuing operations (revenues – expenses) Results of discontinued operations Extraordinary items (don’t expect them to happen again. E.g. Fire) Elements on the Classified Income Statements The income statement includes up to four major sections: = net income
Background image of page 6
Financial Accounting, Third Canadian Edition 3-7 Results of continuing operations Results of continuing operations can be presented in one of the two formats Single step format list all revenues followed by all expense items and then shows the difference between revenue and expenses Multiple step format cost of goods sold are deducted from sales to present gross margin (or gross profit) as a subtotal. Other operating expenses are then deducted to show operating profit (income) as a second subtotal Elements on the Classified Income Statements
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Financial Accounting, Third Canadian Edition 3-8 Revenues Increases in assets or settlements of liabilities from ongoing operations. Expenses Decreases in assets or increases in liabilities to generate revenues during the period. Gross Profit (Gross Margin) Net sales less cost of goods sold. Elements on the Income Statement
Background image of page 8
Financial Accounting, Third Canadian Edition 3-9 Losses Decreases in assets or increases in liabilities from peripheral transactions. Operating Income (e.g. sale the goods
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 34

LN03-ch3-AFM101s10 - Chapter 3 Operating Decisions and the...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online