财务会计教学课件第三章.pptVIP

Here is the income statement of JJ’s Lawn Care we prepared in the previous chapter. Remember, the income statement is prepared for a period of time. In this case, it’s for the month ended May 31, 2011. To provide timely and meaningful information to users of financial statements, business operations are divided into arbitrary time periods. Financial statements are usually prepared monthly. However, many transactions cross from one accounting period to the next. This creates a problem for accountants. Revenues represent the price of goods sold or services rendered to customers during any given accounting period. Revenues increase owners’ equity.Expenses are the cost of goods or services used up in the process of earning revenue. Accountants try to match expenses incurred with the revenues generated in an accounting period. Expenses decrease owners’ equity. One of the basic concepts of accounting is that revenue should be recognized when the goods or services are sold to customers. This concept may take some time to understand, as most people are cash-based. That is, they recognize revenue when cash is received rather than when it is earned and recognize expenses when paid rather than when incurred. The matching principle states that we must match expenses with the period in which they are used. The policy of recognizing revenue in the accounting records when it is earned and recognizing expenses when the related goods or services are used is called the accrual basis of accounting. The purpose of accrual accounting is to measure the profitability of the economic activities conducted during the accounting period. Revenue is offset with all of the expenses incurred in generating that revenue, thus providing a measure of the overall profitability of the economic activity. Let’s look more closely at the recording of revenues and expenses. To review, revenues increase owners’ equity and expenses decrease owners’ equity.A decrease is shown in owners’ equity with a debi