Ch.3 exam 1 - 3-1Click to edit Master subtitle styleChapter...

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Unformatted text preview: 3-1Click to edit Master subtitle styleChapter 3Reporting Operating Results on the Income Statement3-2Learning Objective 1Describe common operating transactions and select appropriate income statement account titles.3-3Revenues and ExpensesRevenues are increases in a companys resources created by sales of goods or services to customers during the period.Expenses are costs of business necessary to earn revenues. Net income is the excess of revenues over expenses. RevenuesPrinting Revenue30,950$ Total Revenue30,950ExpensesSalaries and Wages Expense10,100Rent Expense3,200Utilities Expense500Insurance Expense400Total Expenses14,200Net Income16,750$ HOKIE PRINTSHOPIncome StatementFor the Month Ended September 30, 20083-4Time Period AssumptionRevenuesPrinting Revenue30,950$ Total Revenue30,950ExpensesSalaries and Wages Expense10,100Rent Expense3,200Utilities Expense500Insurance Expense400Total Expenses14,200Net Income16,750$ HOKIE PRINTSHOPIncome StatementFor the Month Ended September 30, 2008The time period assumptionassumes that the long life of a company can be divided into shorter time periods, such as months, quarters, and years. 3-5Cash Basis AccountingCash basisaccounting records revenues when cash is received and expenses when cash is paid.3-6Cash Basis AccountingCash Basis Accounting: does not measure financial performance very well when transactions are conducted using credit rather than cash.3-7Learning Objective 2Explain and apply the revenue and matching principles.3-8Accrual Basis AccountingGAAPRecords revenues when they are earnedand expenseswhen they are incurred, regardless of the timing of cash receipts or payments.Accrual Basis Accounting3-9Accrual Basis AccountingRevenuesare earned when goods or services are provided to customers at a determined price and with reasonable assurance of collection.Expensesare incurredwhen the economic benefits of an item are used up in the current period, resulting in a decrease in the companys resources.3-10Accrual Basis AccountingThe revenue principleis a concept that requires that revenues be recorded when they are earned, rather than when cash is received for them.The matching principleis a concept that requires that expenses be recorded in the period in which they are incurred to generate revenue, rather than the period in which they are paid.3-11Timing of Reporting Revenue versus Cash ReceiptsnWhat if a company receives cash from a customer beforethe company delivers the good or performs the service?nWhen is revenue recorded?nWhat is recorded when the cash is received?3-12Timing of Reporting Revenue versus Cash ReceiptsnWhen the cash is received, an increase in cash is recorded along with an increase in a liability call unearned revenue....
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Ch.3 exam 1 - 3-1Click to edit Master subtitle styleChapter...

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