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Lecture 2

COMMERCE 1AA3 Lecture Notes - Lecture 2: Product Recall, Net Income, Income Statement

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Aadil Merali Juma

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Financial Accounting COMMERCE 1AA3- Class 2
Quiz Prep
-Reading the chapter from the textbook
-Attempting the practice quiz A and B from MyAccountingLab
Midterm Prep
-Powerpoint slides
-Class notes
-Past exams (2006-2012)
Finish reading chapters 1 and 2 by Monday
Finish reading chapter 3 by Friday
You need to know the order of statements:
Income Statement > Statement of retained earnings > Balance Sheets >Statement of cash
What does an income statement measure? The success
What does a balance sheet measure? The financial health
What does the cash flow measure? The liquidity
Income Statements
The income statements that are made up of:
Revenues and gains, expenses and losses
Revenues are persistent. They occur from ongoing or operating activities. There is some
predictive value.
Gains are peripheral. In 2015 Blackberry went bankrupt. They sold 70mil of patents that they
bought for 1mil. The 69mil difference was a gain. It happened one time and it may never happen
again. They are a one time deal that does not happen regularly.
Expenses are persistent. It is the ongoing operating costs that one is aware of.
Losses are peripheral. It is unexpected, no one could predict it (ie. a product recall).
Shows the “bottom line”
-Net income or net loss from the period
The net income is the most important item in the financial statements.
You can have cash and take huge losses but still survive on the savings.
You can make huge sales but if you don’t have cash on hand to pay the bills, you will still go
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