ch03-AFM101w2012

Other operating expenses are then deducted to show

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Unformatted text preview: are then deducted to show operating profit (income) as a second subtotal LO 2 3-8 Elements on the Income Statement Revenues Revenues Increases in assets or settlement of Increases in assets or settlement of lliabilities from ongoing operations. iabilities from ongoing operations. Expenses Expenses Decreases in assets or increases in Decreases in assets or increases in lliabilities from ongoing operations. iabilities from ongoing operations. Gains Gains Increases in assets or settlement of Increases in assets or settlement of lliabilities from peripheral transactions.. iabilities from peripheral transactions Losses Losses Decreases in assets or increases in Decreases in assets or increases in lliabilities from peripheral transactions. iabilities from peripheral transactions. Financial Accounting LO 2 3-9 Elements on the Income Statement Discontinued Operations Result from the disposal of a major segment of the business and are reported net of income tax effect. Discontinued operations are presented separately because of their non-recurring nature and thus are not useful in predicting the future income of the company. Financial Accounting LO 2 3-10 Financial Accounting LO 2 3-11 Cash Basis vs Accrual Accounting Cash Basis Revenue is recorded when cash is received. Expenses are recorded when cash is paid. Financial Accounting Accrual Basis Assets, liabilities, revenues, and expenses should be recognized when the transaction that causes them occurs, not necessarily when cash is paid or received. Required by IFRS/GAAP 3-12 Revenue Principle Recognize revenues when .. .. .. Recognize revenues when The entity has transferred to the buyer the The entity has transferred to the buyer the significant risks and rewards of ownership. significant risks and rewards of ownership. The entity retains neither continuing The entity retains neither continuing managerial involvement nor effective control managerial involvement nor effective control over the goods sold. over the goods sold. The amount of revenue can be reliably The amount of revenue can be reliably measured. measured. Collection is reasonably assured. Collection is reasonably assured. The costs in respect of the transaction can The costs in respect of the transaction can be measured reliably. be measured reliably. Financial Accounting LO 3 Revenue Principle situation #1 – cash received before revenue is earned 3-13 If cash is received before the company delivers goods or services, the liability account UNEARNED REVENUE is recorded. When the company delivers the g...
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This note was uploaded on 04/02/2012 for the course AFM 101 taught by Professor Kennedy during the Winter '08 term at Waterloo.

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