ACC 201-Chapter 3 - Chapter 3 Income Measurement and...

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Chapter 3: Income Measurement and Accrual Accounting The operating cycle o The operating (cash-to-cash) cycle: the time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers. o To measure income for a specific time accountants follow the time period assumption (which indicates that the long life of a company can be reported in shorter time periods). a. Recognize issues: WHEN should the effects of operating activities be recognized? b. Measurement issues: WHAT AMOUNTS should be recognized? Elements on the Income Statement o Revenues : increases in assets or settlements of liabilities from ongoing operations o When revenue is earned cash and assets usually increase. o Restaurants and commissary sales o Franchise fees o Costs and Expenses: decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during a period of time o Expenditures is any outflow of money for any purpose, whether to buy
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ACC 201-Chapter 3 - Chapter 3 Income Measurement and...

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