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Operating Decisions and the Income Statement
Chapter 3
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA
McGrawHill/Irwin Copyright © 2011 by The McGrawHill Companies, Inc. All rights reserved.
Understanding the Business
How do business activities affect the income statement?
How are these activities recognized and measured?
How are these activities reported on the
income statement?
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The Operating Cycle Begin
Purchase or manufacture products or supplies on credit.
Receive payment from customers.
Pay suppliers.
Deliver product or provide service to customers on credit.
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The Operating Cycle
Time Period: The long life of a company can be reported over a series of shorter time periods.
Recognition Issues : When should the effects of operating activities be recognized (recorded)?
Measurement Issues: What amounts should be recognized?
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Elements on the Income Statement
Revenues
Increases in assets or settlement of liabilities from ongoing operations.
Expenses
Decreases in assets or increases in liabilities from ongoing operations.
Gains
Increases in assets or settlement of
liabilities from peripheral transactions.
Losses
Decreases in assets or increases in liabilities from peripheral transactions.
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