Chapter 5 - Chapter 5: The Income Statement: Its Content...

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Chapter 5: The Income Statement: Its Content and Use Importance of Income Statement o Based on Equation: Net Income = Revenues – Expenses Revenues: prices a company charges its customers for goods/services Expenses: cost of providing these goods/services o Summarizes results of a company’s operating activities for specific accounting period Operating activities stem from the planning and operating decisions managers made during period o Show relationship between managers’ decisions and results of decisions o Potential investors and current stockholders use to help decide whether to buy or hold capital stock of the corporation o Banks and other financial institutions use it to determine whether or not to give a company a loan Expanded Accounting System o Expands accounting equation (Assets = Liabilities+ Owner’s Equity) to include revenue and expense transactions o Temporary accounts
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Chapter 5 - Chapter 5: The Income Statement: Its Content...

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