ch3_stu_sp08

ch3_stu_sp08 - ACG 2021 Accounting for Decisions Chapter 3...

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1 ACG 2021 Accounting for Decisions Chapter 3: Operating Decisions and Income Statement Yunhao Chen [email protected]
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2 What do We Hope to Learn? What is the operating cycle of a business? What is the time period assumption? How does a business record revenues and expenses under GAAP? How is the accrual accounting different from the cash accounting? Accruals and Deferrals More ratios
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3 What is the Operating Cycle? Purchase or manufacture products or supplies on credit. Deliver product or provide service to customers on credit Pay suppliers Receive payment from customers
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4 Time Period Assumption The time-period assumption recognizes that decision makers need periodic information about a company. Therefore, the long life of a company needs to be broken down and reported in shorter time periods. Now when to record? What amount to record?
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5 Income Statement Single-step Income  Statement Revenues -- Expenses Net Income Multi-step Income  Statement Sales - Cost of goods sold Gross Margin - Operating Expenses Income before taxes - Income tax expense Net Income Earnings Per Share Remember?
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6 Elements on the Income Statement Major items: Revenues, Expenses (related to operating activities) Gains, Losses (related to other activities) Income taxes Subtotals: Gross margin, Operating income and Income before income taxes (multi-step income statement).
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7 Cash Basis Accounting Revenue and Expenses are recognized when cash is received or paid NOT a generally accepted method of accounting according to GAAP Some businesses (especially small businesses) use cash basis, because it is easy to apply and easy to understand
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8 Accrual Basis Accounting Revenue is recognized--included on the income statement--when it is EARNED. Expenses are recognized in the period in
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This note was uploaded on 04/07/2008 for the course ENG 2021 taught by Professor Yunhaochen during the Spring '08 term at FIU.

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ch3_stu_sp08 - ACG 2021 Accounting for Decisions Chapter 3...

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