07 Financial Statements 1 - Financial Statements 1...

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Unformatted text preview: Financial Statements 1 Financial Statements 1 Accountancy 301 Spring 2011 Flora Zhou 07 Today Today s agenda s agenda Cash-basis versus accrual income measurement. Elements of Income Statement Income statement format and classification Earnings quality Cash vs. Accrual basis of Cash vs. Accrual basis of accounting accounting Cash Basis Accounting records revenues when cash is received and expenses when cash is paid Do assets or liabilities ever result? Does it match performance to periods? Accrual Basis Accounting recognizes transactions, events and circumstances in the periods in which they occur rather than only in periods in which the entity receives or pays cash (SFAC 6). Leads to Accrual Accounts A/R, A/P, unearned revenue, inventory, PP&E, etc. Canterbury Publishing Canterbury Publishing In January 2008, Canterbury sells a three-year subscription to its quarterly magazine to 1,000 customers. Customers pay the full subscription price ($300 = 12 x $25) up front. Canterbury takes out a $100,000 three-year loan. Interest at 10% per year is payable at maturity in 2010. The cost of publishing and distributing the magazine is $60,000 each year, and is paid in cash at the time of publication. Operating Cash Flow: 2009 2010 2008 Subscriptions $300,000 Loan interest ($30,000) (60,000) Magazine costs (60,000) (60,000) Canterbury: Cash-basis income Canterbury: Cash-basis income Cash-basis entries for 2008: DR Cash $300,000 CR Subscription Revenues $300,000 To record collection of 1,000 three-year subscription at $300...
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This note was uploaded on 11/08/2011 for the course ACCY 301 taught by Professor Staff during the Fall '08 term at University of Illinois, Urbana Champaign.

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07 Financial Statements 1 - Financial Statements 1...

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