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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