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07 Financial Statements 1 - 07 Accountancy301 Spring2011...

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Financial Statements 1 Financial Statements 1 Accountancy 301 Spring 2011 Flora Zhou 07
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Today Today ’s agenda ’s agenda • Cash-basis versus accrual income  measurement. • Elements of Income Statement • Income statement format and classification – Earnings quality
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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.
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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)
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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  each for  Windy City Living.
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