ch03-AFM101w2012

Ch03 afm101w2012

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Unformatted text preview: 3-1 FINANCIAL ACCOUNTING Fourth Canadian Edition LIBBY, LIBBY, SHORT, KANAAN, GOWING Operating Decisions and the Income Statement Chapter 3 PowerPoint Author: Robert G. Ducharme, MAcc, CA University of Waterloo, School of Accounting and Finance Financial Accounting 3-2 Understanding the Business How do business activities affect the income statement? How are these activities recognized and measured? recognized How are these activities How reported on the reported income statement? Financial Accounting LO 1 3-3 The Operating Cycle The operating cycle is the time it takes for a company to pay cash to suppliers, sell those goods and services to customers, and collect cash from customers. Begin Purchase or Purchase manufacture products or supplies on credit. credit. Receive payment Receive from customers. from Pay Pay suppliers. suppliers. Deliver product Deliver or provide service to customers on credit. credit. Financial Accounting LO 1 3-4 The Periodicity Assumption To meet the needs of decision makers, we report financial information for relatively short time relatively periods (monthly, quarterly, annually). periods Life of the Business 2009 2010 2011 2012 2013 2014 2015 2016 Annual Accounting Periods Financial Accounting LO 1 The Operating Cycle – Underlying Accounting Assumptions 3-5 Time Period: The long life of a company can be Time Period: The long life of a company can be reported over a series of shorter time periods.. reported over a series of shorter time periods reported reported Recognition Issues :: When should the effects of Recognition Issues When should the effects of operating activities be recognized (recorded)? operating activities be recognized (recorded)? operating operating Measurement Issues: What amounts should be Measurement Issues: What amounts should be recognized? recognized? recognized? recognized? Financial Accounting LO 1 3-6 Elements on the Classified Income Statements The income statement includes up to four major sections: Results of continuing operations Results of continuing operations = profit Results of discontinued operations Results of discontinued operations Earnings per share Earnings per share Financial Accounting LO 2 3-7 Elements on the Classified Income Statements Results of continuing operations can be presented in one of the two formats Single step format list all revenues followed by all expense items and then shows the difference between revenue and expenses Financial Accounting Multiple step format cost of goods sold are deducted from sales to present gross margin (or gross profit) as a subtotal. Other operating expenses...
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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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