财务会计精品课件Libby6e_Chapter_03S.pptVIP

Chapter 3: Operating Decisions and the Income Statement. * * The business cycle begins with the purchase or manufacture of a product for sale. When products are purchased from suppliers, those suppliers must be paid. After a sale has been made, the company must deliver the product or service to the customer. Many business sales are made on credit. If credit is extended, payment must be received from customers. Once the cash has been collected from customers, the business cycle begins all over again. We never want to confuse the business operating cycle with the accounting cycle. * The income statement contains revenues, expenses, gains and losses. We have provided you with definitions of each of the terms. Take a few minutes and read through the definitions. Notice that revenues and expenses are an integral part of the ongoing operations of the business, while gains and losses are only incidental to the operations of the business. * Companies that use the cash accounting basis recognize revenue only when cash is received, and recognize expenses only when cash is paid. A cash basis is not considered part of generally accepted accounting principles. * Generally accepted accounting principles require that assets, liabilities, revenues, and expenses be recognized when the transaction that causes them occurs. The date when cash is paid or received is not necessarily the same as the date upon which a transaction occurs. Generally accepted accounting principles require the use of the accrual method. * When the product is delivered or the service provided, revenue will be recorded. * Here are three typical transactions where cash is collected before the revenue is earned. * When the customer finally pays the cash, the receivable will be eliminated. * Here are three examples where revenue has been earned but cash has not yet been received. * The matching principle requires that we recognize expenses in the same period in which the revenue that was generated by those