33:010:272 Lecture Notes - Lecture 2: Luca Pacioli, Financial Accounting, Time Point

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harlequinprairie-dog808

12 Sep 2016

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You can think of a firm as an entity that takes in resources and uses it to generate products and services. The value of the product or services generated is called revenue. The value of resources used is called expenses. The difference between revenues and expenses is called gross profit or gross income. This is to contrast it with net income which, at least in theory, should be net of taxes (net always means something has been subtracted) However, you have to be prepared for a little confusion in the use of the term income and net income which may or may not be net of taxes. The most important issue in accrual accounting is the recording of revenues (expenses usually follow revenue rather than vice versa). One basic and obvious point is that all revenues have to be measured in monetary units such as dollars.

Related Questions

1. Creditors' claims on the assets of a company are called: (Points : 2)

2. The primary objective of financial accounting is: (Points : 2)

To serve the decision-making needs of internal users

To provide financial statements to help external users analyze and interpret an organization's activities

To monitor and control company activitiesTo provide information on both the costs and benefits of managing products and services

To know what, when and how muchto produce

3. Assets created by selling goods and services on credit are: (Points : 2)

4. The debt ratio is used: (Points : 2)

To measure the amount of equity relative to the expenses

To reflect the risk associated with a company's debts

Only by banks when a business applies for a loan

To determine how much debt a firm should pay off

5. Net Income: (Points : 2)

Decreases equity

Represents the amount of assets owners put into a business

Equals assets minus liabilities

Is the excess of revenues over expenses

Represents the owners' claims against assets

6. Internal users of accounting information include: (Points : 2)

Shareholders

Customers

Creditors

Government regulators

Line Supervisor

7. Risk is: (Points : 2)

Net income divided by average total assets

The reward for investment

The uncertainty about the expected return that will be earned from an investment

Unrelated to expected return

8. An example of an operating activity is: (Points : 2)

Paying wages

Purchasing office equipment

Borrowing money from a bank

Selling stock

Paying off a loan

9. Which accounting assumption assumes that all accounting information is reported monthly or yearly? (Points : 2)

Business entity assumption

Monetary unit assumption

Value assumption

Cost assumption

Time period assumption

10. Distributions of assets by a business to its stockholders are called: (Points : 2)

Complete a horizontal and vertical analysis of the IncomeStatements (below) for the past three years (with all yearlybalances set as a percentage of total revenues for that year), inspreadsheet format.

All numbers in thousands

Period Ending		Sep 26, 2015	Sep 27, 2014	Sep 28, 2013
Total Revenue		233,715,000	182,795,000	170,910,000
Cost of Revenue		140,089,000	112,258,000	106,606,000

Gross Profit		93,626,000	70,537,000	64,304,000

	Operating Expenses
	Research Development	8,067,000	6,041,000	4,475,000
	Selling General and Administrative	14,329,000	11,993,000	10,830,000
	Non Recurring	-	-	-
	Others	-	-	-

	Total Operating Expenses	-	-	-


Operating Income or Loss		71,230,000	52,503,000	48,999,000

	Income from Continuing Operations
	Total Other Income/Expenses Net	1,285,000	980,000	1,156,000
	Earnings Before Interest And Taxes	72,515,000	53,483,000	50,155,000
	Interest Expense	-	-	-
	Income Before Tax	72,515,000	53,483,000	50,155,000
	Income Tax Expense	19,121,000	13,973,000	13,118,000
	Minority Interest	-	-	-

	Net Income From Continuing Ops	53,394,000	39,510,000	37,037,000

	Non-recurring Events
	Discontinued Operations	-	-	-
	Extraordinary Items	-	-	-
	Effect Of Accounting Changes	-	-	-
	Other Items	-	-	-


Net Income		53,394,000	39,510,000	37,037,000
Preferred Stock And Other Adjustments		-	-	-

Net Income Applicable To CommonShares		53,394,000	39,510,000	37,037,000

taupemallard845

(Learning Objective 1: Explain how accrual accounting differs from cash-basis accounting)âHough Consulting had the following selected transactions in July:

July 1 Prepaid insurance for July through September, $4,200.

2 Purchased office furniture for cash, $5,000.

3 Performed consulting services for a client on account, $3,500.

5 Paid advertising expense, $500.

10 Performed consulting services and received cash, $1,500.

20 Purchased a computer on account, $2,500.

25 Collected for July 3 service.

26 Paid account payable from July 20.

29 Paid salary expense, $1,800.

31 Adjusted for July insurance expense (see July 1).

31 Earned revenue of $1,000 that was collected in advance back in June.

31 Recorded July depreciation on fixed assets, $125.

LO USING EXCEL:

1. Show how each transaction would be handled (in terms of recognizing revenues and expenses) using the cash basis and the accrual basis.

2. Compute July income (loss) before tax under each accounting method

3. Indicate which measure of net income or net loss is preferable. Use the transactions on July 3 and July 25 to explain.

sangriallama827

33:010:272 Lecture Notes - Lecture 2: Luca Pacioli, Financial Accounting, Time Point

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