Jan 21, 2008 - Incomestatement o Matchingconcept...

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Key points from last class Income statement o Matching concept TIME not payment o Format Logic: relative to revenue and expense What does the matching imply? o Expense matches Revenue it helped to earn Money is irrelevant Consider an expense on the income statement o Loan payments made that fiscal year is not EXPENSE Loan is taken out to buy assets which is already an expense o Wages/ Wages Incurred this year but not paid is an expense Lecture Income statement Cash vs. profit Sales revenue - accounts receivable  o Not necessarily have received o Revenue generated in that period but might not be paid Expenses - accounts payable o Might not yet paid Amortization o Matching the expense of the item over its life to revenues earned over that  period of time o No cash involved Owners' equity - cash to use for business? If profit is not cash, then why consider cash paid when determining expenses. Profit (not equal to cash) Expense (irrelevant to whether money is paid or not) Balance sheet vs. Income statement Complete the income statement first and get net income (loss) Use net income (loss) to complete the balance sheet -> owner’s equity  section o Retained earnings – the claim that owner have in balance sheet o Dividends payable
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o Tax payable Combined Problems Information included for both the Income Statement and the Balance Sheet, deal  with the information only  once  for  both  the Balance Sheet and Income Statement and  c omplete  the Income Statement first and use the Net Income to complete the Balance  Sheet Sample Combined Problem – O’Reilly’s Gift Shop, Inc. Because of your reputation for a keen accounting mind, you have been  approached by O’Reilly’s Gift Shop, Inc. to draw up financial statements,  specifically an Income Statement and Balance Sheet, for the year ended January  31, 2007. You have been given the following closing account balances, along with some 
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Jan 21, 2008 - Incomestatement o Matchingconcept...

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