Nguyên lý kế toán - Chapter 3: Reporting operating results on the income statement

Part I Although a manager or owner may intuitively sense how the business is doing, a more reliable management approach is to evaluate the revenues and expenses reported on the income statement. This slide illustrates the income statement based on the operating activities that were expected for Pizza Aroma as discussed in Chapter 1. This projected income statement will provide a benchmark to evaluate Pizza Aroma’s actual results. Part II Revenues are the amounts a business charges its customers for goods or services. If Pizza Aroma sells 1,100 pizzas in September and charges $10 per pizza, Pizza Revenue would total $11,000. The amount of revenues earned during the period is the first thing reported in the body of the income statement. Part III Expenses are any costs of operating the business, incurred to generate revenues in the period covered by the income statement. Anything a business uses up to generate revenues during the period is an expense, regardless of when it was or will be paid for. Expenses are reported in the body of the income statement after revenues. Part IV Net income is a total that is calculated by subtracting expenses from revenues; it is not an account like Pizza Revenue or Wages Expense. This total summarizes the overall impact of revenues and expenses in a single number. It is called a net loss if expenses are greater than revenues, and net income if revenues are greater than expenses. Net income indicates the amount by which stockholders’ equity increases as a result of a company’s profitable operations. For this reason, net income (or loss) is a closely watched measure of a company’s success.

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Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinChapter 3Reporting Operating Results on the Income StatementPowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CAOperating ActivitiesOperating activities include buying goods and services from suppliers and employees and selling goods and services to customers and then collecting cash from them.3-3Income Statement Accounts3-4Accrual Basis AccountingGAAPRecords revenues when they are earned and expenses when they are incurred, regardless of the timing of cash receipts or payments.Accrual Basis Accounting3-5Revenue Principle—Revenue RecognitionTiming of Reporting Revenue versus Cash ReceiptsCash is received in the same period as the goods or services are provided.1Cash is received in a period before goods or services are provided.2Cash is received in a period after goods or services are provided.3Revenue Principle Revenues are recognized when they are earned. 3-6Matching Principle—Expense RecognitionTiming of Reporting Expenses versus Cash PaymentsCash is paid at the same time as the cost is incurred to generate revenue.1Cash is paid before the expense is incurred to generate revenue.2Cash is paid after the cost is incurred to generate revenue.3Matching PrincipleRecord expenses in the same period as the revenues with which they can be reasonably associated.3-7ExpensesRevenues- Revenues are recorded with credits. Expenses are recorded with debits.The Expanded Accounting EquationExhibit 3.73-8Pizza Aroma’s Accounting Records(a) Provided services for cash.In September, Pizza Aroma delivered pizza to customers for $15,000 cash.1Analyze2Record3Summarize3-9Pizza Aroma’s Accounting Records(b) Receive cash for future services.Pizza Aroma sold three $100 gift cards at the beginning of September.1Analyze3Summarize2Record3-10Pizza Aroma’s Accounting Records(c) Provide services on credit.Pizza Aroma delivers $500 of pizza to a college organization, billing this customer on account.1Analyze2Record3Summarize3-11Pizza Aroma’s Accounting Records(d) Receive payment on account.Pizza Aroma received a $300 check from the college organization, as partial payment of its account balance.1Analyze2Record3Summarize3-12Unadjusted Trial BalanceCash Ledger Account3-13Review of Revenues and Expenses(2) Cash is received in the same period the company earns revenue.dr. Cash cr. ________ Revenue$Earn Revenue(3) Cash is received after the company earns revenue.dr. Cash cr. Accounts Rec.dr. Accounts Rec. cr. ________ Revenue$Earn Revenue(1) Cash is received before the company earns revenue.dr. Cash cr. Unearned Rev.dr. Unearned Rev. cr. _______ Revenue$Earn Revenue3-14Review of Revenues and Expenses(1) Cash is paid before the expense is incurred.dr. Prepaid Expense cr. Cashdr. Business Expense cr. Prepaid Expense$Use-up Benefits(3) Cash is paid after the expense is incurred.dr. Accounts Payable cr. Cashdr. Business Expense cr. Accounts Payable$Use-up Benefits(2) Cash is paid in the same period the expense is incurred.dr. Business Expense cr. Cash$Use-up Benefits3-15End of Chapter 3

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