Chapter 3 - Chapter 3 Operating Decisions and Income...

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Chapter 3: Operating Decisions and Income Statement HOW DO BUSINESS ACTIVITIES AFFECT INCOME STATEMENT? Operating Cycle Objective of a business is to turn cash into more cash Generate cash from operations, not loans Companies. .. o Acquire inventory and services of employees o Sell inventory or services to customers Operating (Cash-To-Cash) Cycle : time it take for company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers Shortening operating cycle gives higher profit and growth Time period assumption : long life of company can be reported in shorter time periods o Recognition issues: When should operating activities be recorded? o Measurement issues: What amounts should be recognized? Elements On Income Statement Revenues o Increases in assets or settlements of liabilities from ongoing operations o Come from sale of goods and services o Assets increase o Ex: Largest revenue on Papa John’s income statement is “Restaurant and
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