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ADPR5910 Exam 2 Notes (Siciliano 4)

ADPR5910 Exam 2 Notes (Siciliano 4) - Siciliano Ch.4 The...

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Siciliano, Ch.4: The Income Statement: The Flow of Progress 1. Introduction 1. A report that tallies the cumulative effect of all the income and expense transactions that occurred between two balance sheet dates 2. All transactions typically conducted with the idea of producing a profit for the company 3. The income statement shows the company’s success in achieving that objective 2. They say timing is everything—and they’re right 1. Report that most non-financial managers readily recognize 1. It shows whether the business made a profit for the month, the quarter, or the year 2. Managers’ bonuses are often based on profit results 3. Some recognize it by its format, but are used to calling it a different name such as profit and loss (P&L) statement, statement of income and expenses, and a few others 2. Others see it as the report most valued by their CEOs, shareholders, bankers, and government regulators; 3. Acknowledged to be the Most Important Report a Company Produces 1. Non-financial people rarely appreciate transaction timing affects profit to any given period 2. Often surprised that monthly reports don’t show the effects of individual transactions that they reasonably expected to see, even though nothing has been missed or been reported incorrectly 3. Two culprits in this plot: 1. Passage of time btw the date a transaction was first committed to a supplier or a customer and—through the processes of fulfillment, invoicing or billing, and recording—the date payment was made or received 1. Often a long sequence of events that must be completed before a transaction may be recorded 2. Final step can be recorded days or weeks after the initiating department has finished its role in the process 2. The confusion that sometimes arises over when a transaction should properly be recorded, under the accounting rules 1. Expenses do not get recorded when committed, or when order is called in, when purchase order is issued, or even when supplier agrees to supply the goods or services ordered 2. Those are requests or promises 3. Not the irrevocable transactions that we can record 4. Today 1. Many companies have integrated enterprise accounting systems that can keep track of purchase orders issued but not yet fulfilled, and must easier to track and report commitments made for future goods and services 2. Such commitments cannot be booked as actual expenses until the goods have been delivered and the purchase order satisfied
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3. Sales: The Grease for the Engine 1. “Nothing happens until you sell something.” 2. The sale to customers of products and services that the company regularly offers for sale in the normal course of business 1. Don’t include the sale of surplus equipment off the shop floor, bc it’s not
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ADPR5910 Exam 2 Notes (Siciliano 4) - Siciliano Ch.4 The...

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