The income statement is a historical document in the

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Unformatted text preview: 34 The Income Statement Managing Budgets The exact amount of net income that was generated during the period the Income Statement covers. Even if the statement is very well prepared by the best accountants, it is impossible to accurately account for everything. For example, imagine that you spend $2,000 on a telephone marketing campaign to tell your clients or customers about an upcoming special you are offering. If you generate $8,000 in sales the next month, you cannot say that the marketing campaign generated that $8,000 in total. You may have some customers who would have come to you anyway – who might not have even seen the advertisement. Or, you might have customers that received the advertisement, but didn’t buy from you until the second or third month after the advertisement. The revenue for those sales would be attributed to the months in which they occurred, even if it was generated by efforts made several months before. Actual profit. Since revenues are not able to be fully, accurately reported in the accounting period, neither can profit be calculated to 100 percent accuracy. Plus, you also can’t calculate what is called True Profit. This is the difference between what expenses the organization has incurred and what assets have been invested The amount of cash on hand. As we mentioned before, Net Income does not mean cash. It only means the excess revenue over expenses in a specific period. Remember that incoming cash could be used for more investments or to buy more assets, or it could actually be received in a month other than when it was generated. Download free ebooks at 35 Cash Flow Statement Managing Budgets 6. Cash Flow Statement 6.1 Introduction The Cash Flow Statement is where we track cash coming into and going out of the business. Again, this is done for a specific period of time. To understand the Cash Flow Statement, we first need to introduce a few more finance terms. Cash-based accounting In cash-based accounting, all transactions are recorded when the cash is actually receiv...
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This note was uploaded on 06/07/2013 for the course BA 201 taught by Professor Cuongvu during the Fall '13 term at RMIT Vietnam.

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