AFM101 Lecture Notes - Lecture 3: Deferred Income, Retained Earnings, Accrual
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14 Sep 2016
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Shortening the operating cycle means higher net earnings and faster growth. Recognition issues: when should the effects of operating activities be recognized (recorded) Includes three major sections: 1) results of continuing operations, 2) results of discontinued operations (net earnings = sum of 1+2, 3) earnings per share. Operating revenues: revenues: increases in assets or settlements of liabilities from ongoing operations. Assets (usually cash or trade receivables) increase when revenues are earned. Deferred revenue is created when a company receives cash in advance for a for a promise to receive goods or services in the future a liability account is earned. Operating expenses: expenses: decreases in assets (or increase in liabilities) to generate revenues during the period. Different from expenditures which is any outflow of cash for any purpose. Expenses only occur when an asset is used to generate revenue or when an amount is incurred to generate revenues during a period (ex. Cost of sales (aka cost of goods sold)
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