Class Notes (1,017,846)
CA (584,789)
WLU (20,802)
BU (3,853)
BU127 (131)
Lecture 3

BU127 Lecture 3: Chapter 3Premium

8 pages40 viewsFall 2018

Department
Business
Course Code
BU127
Professor
James Moore
Lecture
3

This preview shows pages 1-2. to view the full 8 pages of the document.
Businesses'Develop
!"#$%&'($#)%&'*+,#+-./-%' 0-1.1'#23-,+/%/).' 4#56#/.)7&' 8-#%9,#:$-' /)2/4#+",%'0;"<'%944-%%=9$'<#%'"9,'%+,#+-.>?7
@6-,#+/).' A-4/%/")%'#)2'+;-' *+#+-5-)+' "='B#,,/).%'
The'Ope rating' Cycle
C9,)' 4#% ;'/)+"'5",-' 4#%;
-
C;-' +/5-' /+'+#D-%' =",'#' 4"56#)>' +"'6#>' 4#%;'+"'%966$/-,%&' %-$$'.""2%'#)2' % -,3/4-%' +"'49%+"5-,%&' #)2'4"$$-4+' 4#%;' =,"5'49% +"5-,%'
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The'Periodicity' Assumption
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Time' Pe riod
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Recognition' Issues
H;-)' %;"9$2'+;-'-==-4+%' "='"6-,#+/).' #4+/3/+/-%' :-',-4".)/N-2?
Operating' Expenses
E")%/%+'5#/)$>'"='2/%+,/:9+/")'4"%+%&'#25/)/%+,#+/3-' -P6-)%-%' #)2'"+;-,'"6-,#+/).' -P6-)%-%
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"6-,#+/).' -#,)/).%'0/)4"5-7'#%'#'%-4")2'%9:+"+#$
Ele ments' On'The' State ment' of'Earnings '
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-
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-
BP6-)%-%
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-
!#/)%'
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-
M"%-%
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Other' common' subtotals' on'the'statement' of'earnings' are:
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-
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-
Revenues'
W)4,-#%-%' /)'#%%-+%'",'%-++$-5-)+%' "='$/#:/$/+/-%' =,"5' ")."/).' "6-,#+/")%
Q-4",2-2'<;-)' 4#%;'/%',-4-/3-2'
-
QB\'FB](B^*B*' R' ^BC' W^E@8B
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Expense s
A-4,-#%-%' /)'#%%-+%'",'/)4,-#%-%' /)'$/#:/$/+/-%' +"'.-)-,#+-' ,-3-)9-%' 29,/).'+;-'6-,/"2'
Q-4",2-2'<;-)' 4#%;'/%'6#/2'$
-
Gross'Profit'(Gross'Margin)
^-+'%#$-%'$-%%'4"%+'"='%#$-%'
Earnings ' From' Ope rations'
0"6-,#+/).' /)4"5-7'-I9#$%')-+'%#$-%'$-%%'4"%+'"='%#$-%'#)2'"6-,#+/).' -P6-)%-%'
Discontinues'Operations
Q-%9$+'=,"5'+;-'2/%6"%#$'"='#'5#_",' %-.5-)+' "='+;-':9%/)-%%'#)2'#,-' ,-6",+-2' )-+'"='+;-',-$#+-2' /)4"5-'+#P'-==-4+
^"+'9%-=9$'/)'6,-2/4+/).'=9+9,-'-#,)/).%'"='#'4"56#)>
-
How'Operating' Activities' Are'Recognized'and'Measured
Q-3-)9-
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H;-)' 4#%;'/%',-4-/3-2
Expenditures'
A-:+'(#>5-)+%
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BP6-)%-%'
-
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Primary' Expenses
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A/%+,/:9+/")'-P6-)%-%
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Non'Operating' Items'
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Loses'
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Earnings ' Before'Income' Taxes
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Cash'Basis'Accounting'
Q-4",2%',-3-)9-%' <;-)' 4#%;'/%',-4-/3-2' #)2'-P6-)%-%' <;-)' 4#%;'/%'6#/2'
Accrual' Bas is'Accounting'
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`%%-+%&' $/#:/$/+/-%&' ,-3-)9-%&' #)2'-P6-)%-%' %;"9$2':-' ,-4".)/N-2' <;-)' +;-' +,#)%#4+/")' +;#+' 4#9%-%'+;-5' "449,%&'not$necessarily$when$cash$is$
paid$or$received.
-
Revenue'Recognition' Principle
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Conditions'for'Revenue'To'Be'Recognized
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#1
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When'Cash' Can'Be'Delivered
O-=",-' +;-'.""2%'",'%-,3/4-%' ;#3-' :--)'2-$/3-,-2T1
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Trans action' Mode
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Total' Ass et'Turnove r' Ration
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Return' on'Assets'(ROA)' Ratio
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Equations
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Selling' Expense R''!,"%% '(,"=/+'FB#,)/).' O-=",-' W)4"5-' C#P' F`25/)/%+,#+/3-' BP6-)%-'
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Businesses'Develop
!"#$%&'($#)%&'*+,#+-./-%' 0-1.1'#23-,+/%/).' 4#56#/.)7&' 8-#%9,#:$-' /)2/4#+",%'0;"<'%944-%%=9$'<#%'"9,'%+,#+-.>?7
@6-,#+/).' A-4/%/")%'#)2'+;-' *+#+-5-)+' "='B#,,/).%'
The'Ope rating' Cycle
C9,)' 4#% ;'/)+"'5",-' 4#%;
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-
E>4$-':-./)% <;-)' #' 4"56#)>',-4-/3-%' .""2%'+"'% -$$&' 6#>%'=",'+;-5&' #)2'%-$$% ' /+'+"'49% +"5-,% ' #)2'-)2%'<;-)' +;-'49%+"5-,' 6#>% ' 4#%;'+"'+;-'
4"56#)>
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=$"<'
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B1.1' !,"4-,>' %+",-%';#3-' #'3-,>' ;/.;'+9,)"3-,&' 6-,/% ;#:/$/+>KKK' 0=#%+J%;",+'4>4$-7
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-
The'Periodicity' Assumption
C;-' $").' $/=-' "='#'4"56#)>' 4#)':-' ,-6",+-2' /)'%;",+-,' 6-,/"2% '0',-6",+%' =/)#)4/#$' /)=",5#+/")' +"' '5--+' +;-')--2%' "='2-4/%/")' 5#D-,%7
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Time' Pe riod
C;-' $").' $/=-' "='#'4"56#)>' 4#)':-' ,-6",+-2' "3-,' #'%-,/-%' "=' % ;",+-,'+/5-' 6-,/"2%
Recognition' Issues
H;-)' %;"9$2'+;-'-==-4+%' "='"6-,#+/).' #4+/3/+/-%' :-',-4".)/N-2?
Operating' Expenses
E")%/%+'5#/)$>'"='2/%+,/:9+/")'4"%+%&'#25/)/%+,#+/3-' -P6-)%-%' #)2'"+;-,'"6-,#+/).' -P6-)%-%
-
Sections'of'the'Statement' of'Earnings
C,>/).' +"'6,-2/4+' <;#+' </$$' ;#66-)' /)'+;-' =9+9,-
-
Q-%9$+%'"='4")+/)9/).'"6-,#+/")%
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T1
Q-%9$+%'"='2/%4")+/)9-2'"6-,#+/")%'U1
Net$Earnings$(sum$of$1$and$2)
B#,)/).%' 6-,' %;#,-V1
Ele ments' of'The'Statement' of'Earnings' -2'Formats
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M/%+%'#$$',-3-)9-%' ="$$"<-2' :>'#$$'-P6-)%-'/+-5%'#)2'+;-)'%;"<%'+;-'2/==-,-)4-' :-+<--)' ,-3-)9-' #)2'-P6-)%-%
89$+/6$-'*+-6'L",5#+
E"%+'"='.""2%'%"$2'#,-'2-294+-2'=,"5'%#$-%'+"'6,-%-)+'.,"%%'5#,./)' 0",'.,"%%'6,"=/+7'#%'#'%9:+"+#$1'@+;-,'"6-,#+/).' -P6-)%-%'#,-' +;-)'2-294+-2' +"'%;"<'
"6-,#+/).' -#,)/).%'0/)4"5-7'#%'#'%-4")2'%9:+"+#$
Ele ments' On'The' State ment' of'Earnings '
Q9$-%',-I9/,-' +;#+'#44"9)+%'59%+':-'%-6#,#+-2
-
Q-3-)9-%'
W)4,-#%-%' /)'#%%-+%'",'%-++$-5-)+' "='$/#:/$/+/-%' =,"5' ")."/).' "6-,#+/")%
-
BP6-)%-%
A-4,-#%-%' /)'#%%-+%'",'/)4,-#%-%' /)'$/#:/$/+/-%' =,"5'")."/).'"6-,#+/")%
-
!#/)%'
W)4,-#%-%' /)'#%%-+%'",'%-++$-5-)+' "='$/#:/$/+/-%' =,"5' 6-,/6;-,#$' +,#)%#4+/")%
-
M"%-%
A-4,-#%-%' /)'#%%-+%'",'/)4,-#%-%' /)'$/#:/$/+/-%' =,"5'6-,/6;-,#$' +,#)%#4+/")%
B1.1' :9>/).'#' 6/-4-' "='-I9/65-)+' =",'XU Y&Y YY'+;-)';#3/).' +"'% -$$' /+'=",'XTZ&YYY
-
Other' common' subtotals' on'the'statement' of'earnings' are:
!,"%%'(,"=/+'0!,"%%'8#,./)7'R')-+'%#$-%'[4"%+'"='%#$-%
-
@6-,#+/).' W)4"5-'R')-+'%#$-%'[4"%+'"='%#$-%'["+;-,'"6-,#+/).' -P6-)%-%
-
B#,)/).%' :-=",-' W)4"5-' C#P-%' R' ,-3-)9-%' [#$$' -P6-)%-%' -P4-6+' /)4"5-' +#P'-P6-)%-
-
Revenues'
W)4,-#%-%' /)'#%%-+%'",'%-++$-5-)+%' "='$/#:/$/+/-%' =,"5' ")."/).' "6-,#+/")%
Q-4",2-2'<;-)' 4#%;'/%',-4-/3-2'
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QB\'FB](B^*B*' R' ^BC' W^E@8B
-
Expense s
A-4,-#%-%' /)'#%%-+%'",'/)4,-#%-%' /)'$/#:/$/+/-%' +"'.-)-,#+-' ,-3-)9-%' 29,/).'+;-'6-,/"2'
Q-4",2-2'<;-)' 4#%;'/%'6#/2'$
-
Gross'Profit'(Gross'Margin)
^-+'%#$-%'$-%%'4"%+'"='%#$-%'
Earnings ' From' Ope rations'
0"6-,#+/).' /)4"5-7'-I9#$%')-+'%#$-%'$-%%'4"%+'"='%#$-%'#)2'"6-,#+/).' -P6-)%-%'
Discontinues'Operations
Q-%9$+'=,"5'+;-'2/%6"%#$'"='#'5#_",' %-.5-)+' "='+;-':9%/)-%%'#)2'#,-' ,-6",+-2' )-+'"='+;-',-$#+-2' /)4"5-'+#P'-==-4+
^"+'9%-=9$'/)'6,-2/4+/).'=9+9,-'-#,)/).%'"='#'4"56#)>
-
How'Operating' Activities' Are'Recognized'and'Measured
Q-3-)9-
W%',-4",2-2
H;-)' 4#%;'/%',-4-/3-2
Expenditures'
A-:+'(#>5-)+%
-
BP6-)%-%'
-
`%%-+%'69,4;#%-%' 0</$$' :-'-P6-)%-2' <;-)' 9%-2'+"'.-)-,#+-' ,-3-)9-%7
-
Primary' Expenses
E"%+'"='%#$-%'09%-2'/)3-)+",/-%7
-
*#$-%' #)2' 5#,D-+/).' -P6-)%-%
-
A/%+,/:9+/")'-P6-)%-%
-
!-)-,#$' #)2'#25/)/%+,#+/3-' -P6-)%-%'
-
Non'Operating' Items'
W)3-%+5-)+' /)4"5-' 0",'/)3-%+5-)+&' /)+-,-%+&' ",' 2/3/2-)2' ,-3-)9-7
-
L/)#)4/).' 4"%+%
-
!#/)%'",'$"%%-%'")'2/%6"%#:$-'#%%-+%
H;-)' 4"56#)/-%' 2/%6"%-'"='-I9/65-)+'",'$#)2
-
Gains
W)4,-#%-%' /)'#%%-+%'",'2-4,-#%-%' /)'$/#:/$/+/-%' =,"5' 6-,/6;-,#$' +,#)%#4+/")%
Loses'
A-4,-#%-%' /)'#%%-+%'",'/)4,-#%-%' /)'$/#:/$/+/-%' =,"5'6-,/6;-,#$' +,#)%#4+/")%'
Earnings ' Before'Income' Taxes
06,-F+#P' -#,)/).%7' -I9#$%' ,-3-)9-%' 5/)9%'#$$'-P6-)%-%' -P4-6+' /)4"5-' +#P' -P6-)%-
Cash'Basis'Accounting'
Q-4",2%',-3-)9-%' <;-)' 4#%;'/%',-4-/3-2' #)2'-P6-)%-%' <;-)' 4#%;'/%'6#/2'
Accrual' Bas is'Accounting'
Q-4",2%',-3-)9-%' <;-)' -#,)-2' #)2'-P6-)%-%'<;-)'/)49,,-2&' ,-.#,2$-%%' "='+;-' +/5/).'"='4#%;',-4-/6+%'",'6#>5-)+%'
`%%-+%&' $/#:/$/+/-%&' ,-3-)9-%&' #)2'-P6-)%-%' %;"9$2':-' ,-4".)/N-2' <;-)' +;-' +,#)%#4+/")' +;#+' 4#9%-%'+;-5' "449,%&'not$necessarily$when$cash$is$
paid$or$received.
-
Revenue'Recognition' Principle
*+#+-%' +;#+' ,-3-)9-%' #,-' ,-4".)/N-2' <;-)' +;-' %/.)/=/4#)+' ,/%D%'#)2',-<#,2%' "='"<)-,%;/6' #,-' +,#)%=-,,-2' +"'+;-' :9>-,
-
C;-' -)+/+>' ,-+#/)% ' )-/+;-,' 4")+/)9/).' 5#)#.-,/#$' /)3"$3-5-)+' )",'-==-4+/3-' 4")+,"$'"3-,' +;-'.""2%'%"$2
-
C;-' #5"9)+' "=',-3-)9-' 4#)' :-'5-#%9,-2' ,-$/#:$>'
B1.1' /='>"9'2")a+'D)"<' ;"<' 594;'+;-' ,-3-)9-' /% '."/).' +"':-&' /+'/% ')"+',-$/#:$-' #)2'+;-,-=",-' %;"9$2')"+':-',-4",2-2' ")'%+#+-5-)+' "='
-#,)/).%'
-
L9+9,-' -4")"5/4' :-)-=/+%' </$$' =$"<' +"'+;-' -)+/+>
-
E"$$-4+/")'/%',-#%")#:$>' #%%9,-2
-
Conditions'for'Revenue'To'Be'Recognized
8`bB'*cQB'^@C'C@'QB[email protected]!^WdB' QB\B^cB' OBL@QB' WC'e`*'OBB^' QBEBW\BA
-
C;-' -)+/+>' ;#%' +,#)%=-,,-2' +"'+;-' :9>-,' +;-'% /.)/=/4#)+' ,/%D%'#)2' ,-<#,2% ' "='"<)-,%;/6' "='+;-'.""2%T1
C;-' -)+/+>' ,-+#/)% ' )-/+;-,' 4")+/)9/).' 5#)#.-,/#$' /)3"$3-5-)+' +"'+;-' 2-.,--' 9%9#$$>' #%%"4/#+-2' </+;' "<)-,%;/6' )",'-==-4+/3-' 4")+,"$'"3-,'+;-'
.""2%'%"$2'
U1
C;-' #5"9)+' "=',-3-)9-' 4#)' :-'5-#%9,-2' ,-$/#:$>'V1
W+' /%'6,":#:$-' +;#+'+;-' -4")"5/4' :-)-=/+%' #%%"4/#+-2' </+;' +;-' +,#)%#4+/")' </$$' =$"<' +"'+;-' -)+/+>'f1
C;-' 4"%+%'/)49,,-2' ",'+"':-' /)49,,-2' </+;' ,-%6-4+' +"'+;-' +,#)%#4+/")' 4#)':-' 5-#%9,-2' ,-$/#:$>'
B1.1' /='>"9'2")a+'D)"<' ;"<' 594;'+;-' ,-3-)9-' /% '."/).' +"':-&' /+'/% ')"+',-$/#:$-' #)2'+;-,-=",-' %;"9$2')"+':-',-4",2-2' ")'%+#+-5-)+' "='
-#,)/).%'
#1
Z1
When'Cash' Can'Be'Delivered
O-=",-' +;-'.""2%'",'%-,3/4-%' ;#3-' :--)'2-$/3-,-2T1
`+' +;-'%#5-' +/5-' #%'+;-' .""2%'",'%-,3/4-%' #,-' 2-$/3-,-2'U1
`=+-,' +;-' .""2%'",'%-,3/4-%' #,-' 2-$/3-,-2V1
The'Matching' Proces s
Q-I9/,-%'+;#+'-P6-)%-%':-',-4",2-2'<;-)' /)49,,-2'/)'-#,)/).' ,-3-)9-'
`' 5#+4;/).' "='4"%+%'</+;':-)-=/+%'
-
BP#56$-%' "='-P6-)%-%' /)49,,-2' /)'.-)-,#+/).' ,-3-)9-
*#$#,/-%' +"'-56$">--%' <;"'<",D-2' 29,/).' +;-'6-,/"2'
c+/$/+/-%'=",'+;-'-$-4+,/4/+>g%' 9%-2'29,/).'+;-'6-,/"2
W)3-)+",>' /+-5%'
-
Trans action' Mode
W)4$92-%' #%%-+%&'$/#:/$/+/-%&' %;#,-;"$2-,%' -I9/+>&' ,-3-)9-%' #)2'-P6-)%-%
-
Q-+#/)-2' -#,)/).%'R'6#%+',-3-)9-%' #)2'-P6-)%-%'F-#,)/).%' 2/%+,/:9+-2' +"'% ;#,-;"$2-,%' #%'2/3/2-)2%'
-
B3-,>' +,#)%#4+/")' #==-4+%' #+'$-#%+' U'#44"9)+%
-
Q-3-)9-%' /)4,-#%-')-+'-#,)/).%&' ,-+#/)-2' -#,)/).%' #)2'%;#,-;"$2-,%' -I9/+>'
@66"%/+-'=",'-P6-)%-%
-
Total' Ass et'Turnove r' Ration
*#$-%' 0",'@6-,#+/).7' Q-3-)9-%' J' `3-,#.-' C"+#$' `%%-+%
Return' on'Assets'(ROA)' Ratio
^-+'B#,)/).%'S'W)+-,-%+' BP6-)%-'0)-+'"='+#P7'J'`3-,#.-' C"+#$' `%%-+%
8-#%9,-%';"<'594;'+;-'=/,5'-#,)-2' =",'-#4;'2"$$#,'"='/)3-%+5-)+
-
*;#,-;"$2-,%' </$$' 6,"3/2-' #%%-+%&' +;-,-=",-' >"9'</$$' ;#3-' )"'/)+-,-%+' -P6-)%-%' #)2')"'2-:+
-
`' 4"56#)>'</+;' #' $"+'"='2-:+' </$$' ;#3-' #' $"<-,' ,#+/"
-
Q-+9,)'")'#%%-+%'/%'#' .""2'/)2/4#+",'<;-)'4"56#,/).'4"56#)/-%' 2-:+%'
-
Equations
*#$-%' Q-3
E"%+'"='%#$-'
-
R' !,"% %'(,"=/+
@+;-,'-P6-)%-
-
R' -#,)/).%' :-=",-' /)4"5-' +#P
W)4"5-' +#P
-
R' ^-+' B#,)/).%
Selling' Expense R''!,"%% '(,"=/+'FB#,)/).' O-=",-' W)4"5-' C#P' F`25/)/%+,#+/3-' BP6-)%-'
BP6-)%-%'#,-
Q-4",2-2'<;-)'
E#%;'/%'6#/2
Chapter(3
8")2#>&'h#)9#,>'TZ&'UYTi TUjTZ'(8
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Businesses'Develop
!"#$%&'($#)%&'*+,#+-./-%' 0-1.1'#23-,+/%/).' 4#56#/.)7&' 8-#%9,#:$-' /)2/4#+",%'0;"<'%944-%%=9$'<#%'"9,'%+,#+-.>?7
@6-,#+/).' A-4/%/")%'#)2'+;-' *+#+-5-)+' "='B#,,/).%'
The'Ope rating' Cycle
C9,)' 4#% ;'/)+"'5",-' 4#%;
-
C;-' +/5-' /+'+#D-%' =",'#' 4"56#)>' +"'6#>' 4#% ;'+"'% 966$/-,% &' %-$$'.""2%'#)2' % -,3/4-%' +"'49%+"5-,%&' #)2'4"$$-4+' 4#% ;' =,"5'49%+"5-,%'
-
E>4$-':-./)% <;-)' #' 4"56#)>',-4-/3-%' .""2%'+"'% -$$&' 6#>%'=",'+;-5&' #)2'%-$$% ' /+'+"'49% +"5-,% ' #)2'-)2%'<;-)' +;-'49%+"5-,' 6#>% ' 4#%;'+"'+;-'
4"56#)>
-
E"56#)/-%'#++-56+' +"'%;",+-)'#)'"6-,#+/).' 4>4$-':>'4,-#+/).' /)4-)+/3-%' +"'-)4"9,#.-' 49%+"5-,%'+"':9>'%"")-,'",'6#>'=#%+-,'FFG'/56,"3-%' 4#%;'
=$"<'
-
B1.1' H#$5#,+' 5"3-%' 6,"294+%'+;,"9.;'+;-/,' %;-$3-%' 3-,>' I9/4D$>' 0=#%+J%;",+'4>4$-7
-
B1.1' !,"4-,>' %+",-%';#3-' #'3-,>' ;/.;'+9,)"3-,&' 6-,/% ;#:/$/+>KKK' 0=#%+J%;",+'4>4$-7
-
L#%+J%;",+' 4>4$-%' #,-' :-)-=/4/#$' #%'+;->' 5#D-' #44"9)+/).' -#%/-,'
-
B1.1' 4"56#)>' +;#+':9/$+' M#N #,2/% ';#%'#' %$"<J$").'4>4$- 0/+'+""D'#'$").'+/5-' +"':9/$27
-
The'Periodicity' Assumption
C;-' $").' $/=-' "='#'4"56#)>' 4#)':-' ,-6",+-2' /)'%;",+-,' 6-,/"2% '0',-6",+%' =/)#)4/#$' /)=",5#+/")' +"' '5--+' +;-')--2%' "='2-4/%/")' 5#D-,%7
-
O,-#D/).' 2"<)'/)4"5-&'#)2'#$$"4#+/).'/+'5",-' -==/4/-)+$>
-
8")+;$>&'I9#,+-,$>&' #))9#$$>'
-
Time' Pe riod
C;-' $").' $/=-' "='#'4"56#)>' 4#)':-' ,-6",+-2' "3-,' #'%-,/-%' "=' % ;",+-,'+/5-' 6-,/"2%
Recognition' Issues
H;-)' %;"9$2'+;-'-==-4+%' "='"6-,#+/).' #4+/3/+/-%' :-',-4".)/N-2?
Operating' Expenses
E")%/%+'5#/)$>'"='2/%+,/:9+/")'4"%+%&'#25/)/%+,#+/3-' -P6-)%-%' #)2'"+;-,'"6-,#+/).' -P6-)%-%
-
Sections'of'the'Statement' of'Earnings
C,>/).' +"'6,-2/4+' <;#+' </$$' ;#66-)' /)'+;-' =9+9,-
-
Q-%9$+%'"='4")+/)9/).'"6-,#+/")%
E")+/)9/).'"6-,#+/")%'6,"=/+'R',-3-)9-' F-P6-)% -%' S' .#/)%'F$"%%-%#1
T1
Q-%9$+%'"='2/%4")+/)9-2'"6-,#+/")%'U1
Net$Earnings$(sum$of$1$and$2)
B#,)/).%' 6-,' %;#,-V1
Ele ments' of'The'Statement' of'Earnings' -2'Formats
*/).$-' *+-6' L",5#+
M/%+%'#$$',-3-)9-%' ="$$"<-2' :>'#$$'-P6-)%-'/+-5%'#)2'+;-)'%;"<%'+;-'2/==-,-)4-' :-+<--)' ,-3-)9-' #)2'-P6-)%-%
89$+/6$-'*+-6'L",5#+
E"%+'"='.""2%'%"$2'#,-'2-294+-2'=,"5'%#$-%'+"'6,-%-)+'.,"%%'5#,./)' 0",'.,"%%'6,"=/+7'#%'#'%9:+"+#$1'@+;-,'"6-,#+/).' -P6-)%-%'#,-' +;-)'2-294+-2' +"'%;"<'
"6-,#+/).' -#,)/).%'0/)4"5-7'#%'#'%-4")2'%9:+"+#$
Ele ments' On'The' State ment' of'Earnings '
Q9$-%',-I9/,-' +;#+'#44"9)+%'59%+':-'%-6#,#+-2
-
Q-3-)9-%'
W)4,-#%-%' /)'#%%-+%'",'%-++$-5-)+' "='$/#:/$/+/-%' =,"5' ")."/).' "6-,#+/")%
-
BP6-)%-%
A-4,-#%-%' /)'#%%-+%'",'/)4,-#%-%' /)'$/#:/$/+/-%' =,"5'")."/).'"6-,#+/")%
-
!#/)%'
W)4,-#%-%' /)'#%%-+%'",'%-++$-5-)+' "='$/#:/$/+/-%' =,"5' 6-,/6;-,#$' +,#)%#4+/")%
-
M"%-%
A-4,-#%-%' /)'#%%-+%'",'/)4,-#%-%' /)'$/#:/$/+/-%' =,"5'6-,/6;-,#$' +,#)%#4+/")%
B1.1' :9>/).'#' 6/-4-' "='-I9/65-)+' =",'XU Y&Y YY'+;-)';#3/).' +"'% -$$' /+'=",'XTZ&YYY
-
Other' common' subtotals' on'the'statement' of'earnings' are:
!,"%%'(,"=/+'0!,"%%'8#,./)7'R')-+'%#$-%'[4"%+'"='%#$-%
-
@6-,#+/).' W)4"5-'R')-+'%#$-%'[4"%+'"='%#$-%'["+;-,'"6-,#+/).' -P6-)%-%
-
B#,)/).%' :-=",-' W)4"5-' C#P-%' R' ,-3-)9-%' [#$$' -P6-)%-%' -P4-6+' /)4"5-' +#P'-P6-)%-
-
Revenues'
W)4,-#%-%' /)'#%%-+%'",'%-++$-5-)+%' "='$/#:/$/+/-%' =,"5' ")."/).' "6-,#+/")%
Q-4",2-2'<;-)' 4#%;'/%',-4-/3-2'
-
QB\'FB](B^*B*' R' ^BC' W^E@8B
-
Expense s
A-4,-#%-%' /)'#%%-+%'",'/)4,-#%-%' /)'$/#:/$/+/-%' +"'.-)-,#+-' ,-3-)9-%' 29,/).'+;-'6-,/"2'
Q-4",2-2'<;-)' 4#%;'/%'6#/2'$
-
Gross'Profit'(Gross'Margin)
^-+'%#$-%'$-%%'4"%+'"='%#$-%'
Earnings ' From' Ope rations'
0"6-,#+/).' /)4"5-7'-I9#$%')-+'%#$-%'$-%%'4"%+'"='%#$-%'#)2'"6-,#+/).' -P6-)%-%'
Discontinues'Operations
Q-%9$+'=,"5'+;-'2/%6"%#$'"='#'5#_",' %-.5-)+' "='+;-':9%/)-%%'#)2'#,-' ,-6",+-2' )-+'"='+;-',-$#+-2' /)4"5-'+#P'-==-4+
^"+'9%-=9$'/)'6,-2/4+/).'=9+9,-'-#,)/).%'"='#'4"56#)>
-
How'Operating' Activities' Are'Recognized'and'Measured
Q-3-)9-
W%',-4",2-2
H;-)' 4#%;'/%',-4-/3-2
Expenditures'
A-:+'(#>5-)+%
-
BP6-)%-%'
-
`%%-+%'69,4;#%-%' 0</$$' :-'-P6-)%-2' <;-)' 9%-2'+"'.-)-,#+-' ,-3-)9-%7
-
Primary' Expenses
E"%+'"='%#$-%'09%-2'/)3-)+",/-%7
-
*#$-%' #)2' 5#,D-+/).' -P6-)%-%
-
A/%+,/:9+/")'-P6-)%-%
-
!-)-,#$' #)2'#25/)/%+,#+/3-' -P6-)%-%'
-
Non'Operating' Items'
W)3-%+5-)+' /)4"5-' 0",'/)3-%+5-)+&' /)+-,-%+&' ",' 2/3/2-)2' ,-3-)9-7
-
L/)#)4/).' 4"%+%
-
!#/)%'",'$"%%-%'")'2/%6"%#:$-'#%%-+%
H;-)' 4"56#)/-%' 2/%6"%-'"='-I9/65-)+'",'$#)2
-
Gains
W)4,-#%-%' /)'#%%-+%'",'2-4,-#%-%' /)'$/#:/$/+/-%' =,"5' 6-,/6;-,#$' +,#)%#4+/")%
Loses'
A-4,-#%-%' /)'#%%-+%'",'/)4,-#%-%' /)'$/#:/$/+/-%' =,"5'6-,/6;-,#$' +,#)%#4+/")%'
Earnings ' Before'Income' Taxes
06,-F+#P' -#,)/).%7' -I9#$%' ,-3-)9-%' 5/)9%'#$$'-P6-)%-%' -P4-6+' /)4"5-' +#P' -P6-)%-
Cash'Basis'Accounting'
Q-4",2%',-3-)9-%' <;-)' 4#%;'/%',-4-/3-2' #)2'-P6-)%-%' <;-)' 4#%;'/%'6#/2'
Accrual' Bas is'Accounting'
Q-4",2%',-3-)9-%' <;-)' -#,)-2' #)2'-P6-)%-%'<;-)'/)49,,-2&' ,-.#,2$-%%' "='+;-' +/5/).'"='4#%;',-4-/6+%'",'6#>5-)+%'
`%%-+%&' $/#:/$/+/-%&' ,-3-)9-%&' #)2'-P6-)%-%' %;"9$2':-' ,-4".)/N-2' <;-)' +;-' +,#)%#4+/")' +;#+' 4#9%-%'+;-5' "449,%&'not$necessarily$when$cash$is$
paid$or$received.
-
Revenue'Recognition' Principle
*+#+-%' +;#+' ,-3-)9-%' #,-' ,-4".)/N-2' <;-)' +;-' %/.)/=/4#)+' ,/%D%'#)2',-<#,2%' "='"<)-,%;/6' #,-' +,#)%=-,,-2' +"'+;-' :9>-,
-
C;-' -)+/+>' ,-+#/)% ' )-/+;-,' 4")+/)9/).' 5#)#.-,/#$' /)3"$3-5-)+' )",'-==-4+/3-' 4")+,"$'"3-,' +;-'.""2%'%"$2
-
C;-' #5"9)+' "=',-3-)9-' 4#)' :-'5-#%9,-2' ,-$/#:$>'
B1.1' /='>"9'2")a+'D)"<' ;"<' 594;'+;-' ,-3-)9-' /% '."/).' +"':-&' /+'/% ')"+',-$/#:$-' #)2'+;-,-=",-' %;"9$2')"+':-',-4",2-2' ")'%+#+-5-)+' "='
-#,)/).%'
-
L9+9,-' -4")"5/4' :-)-=/+%' </$$' =$"<' +"'+;-' -)+/+>
-
E"$$-4+/")'/%',-#%")#:$>' #%%9,-2
-
Conditions'for'Revenue'To'Be'Recognized
8`bB'*cQB'^@C'C@'QB[email protected]!^WdB' QB\B^cB' OBL@QB' WC'e`*'OBB^' QBEBW\BA
-
C;-' -)+/+>' ;#%' +,#)%=-,,-2' +"'+;-' :9>-,' +;-'% /.)/=/4#)+' ,/%D%'#)2' ,-<#,2% ' "='"<)-,%;/6' "='+;-'.""2%T1
C;-' -)+/+>' ,-+#/)% ' )-/+;-,' 4")+/)9/).' 5#)#.-,/#$' /)3"$3-5-)+' +"'+;-' 2-.,--' 9%9#$$>' #%%"4/#+-2' </+;' "<)-,%;/6' )",'-==-4+/3-' 4")+,"$'"3-,'+;-'
.""2%'%"$2'
U1
C;-' #5"9)+' "=',-3-)9-' 4#)' :-'5-#%9,-2' ,-$/#:$>'V1
W+' /%'6,":#:$-' +;#+'+;-' -4")"5/4' :-)-=/+%' #%%"4/#+-2' </+;' +;-' +,#)%#4+/")' </$$' =$"<' +"'+;-' -)+/+>'f1
C;-' 4"%+%'/)49,,-2' ",'+"':-' /)49,,-2' </+;' ,-%6-4+' +"'+;-' +,#)%#4+/")' 4#)':-' 5-#%9,-2' ,-$/#:$>'
B1.1' /='>"9'2")a+'D)"<' ;"<' 594;'+;-' ,-3-)9-' /% '."/).' +"':-&' /+'/% ')"+',-$/#:$-' #)2'+;-,-=",-' %;"9$2')"+':-',-4",2-2' ")'%+#+-5-)+' "='
-#,)/).%'
#1
Z1
When'Cash' Can'Be'Delivered
O-=",-' +;-'.""2%'",'%-,3/4-%' ;#3-' :--)'2-$/3-,-2T1
`+' +;-'%#5-' +/5-' #%'+;-' .""2%'",'%-,3/4-%' #,-' 2-$/3-,-2'U1
`=+-,' +;-' .""2%'",'%-,3/4-%' #,-' 2-$/3-,-2V1
The'Matching' Proces s
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