income statement

Cost of goods sold cogs cost of the product being

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Unformatted text preview: the following transac2ons: a)  Collects $800 cash from a customer during March for a custom- made suit that the firm will make and deliver to the customer in April. b)  Collects $2,160 cash from customers for meals served in the firm’s restaurant during March. c)  Collects $39,200 cash from customers during March for merchandise sold and delivered in February. d)  Sells merchandise to customers during March on account, for which the firm will collect $59,400 cash from customers during April. e)  Rents space in its store to a travel agency for $9,000 a month, effec2ve March 1. Receives $18,000 cash on March 1 for two months’ rent. f)  Same as part e, except that it receives the check for the March and April rent on April 1. 15 Accrual- Basis Accoun2ng •  What is an expense? –  Expenses measure the assets consumed in genera2ng revenue. Assets are unexpired costs, and expenses are expired costs or “gone assets” Expense recogni2on •  When do we recognize expenses? We use the matching principle! step1 step 2 step 3 • Revenues iden<fied for a given <me period • Determine the costs of resources used in genera<ng those revenues • Record appropriate amount of expenses in the same <me period as the revenue it relates. 16 Matching Principle •  Fundamental concept underlying accrual accoun2ng. •  Expenses should be recognized when revenues that result from them are recognized. •  If spend money today to generate revenues today then recognize expense today. •  If spend money today to generate revenues next year then costs are capitalized today and expensed next year. 17 Expenses •  Meas...
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