RSM219H1 Chapter Notes - Chapter 4: Gross Margin, Accrual, Income Statement
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RSM219H1 Full Course Notes
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Document Summary
Net sales = gross sales - (customer discounts, returns, allowances) Gross profit = net sales - cost of goods sold. Operating profit = gross profit - total operating expenses. Net income (or net profit) = operating profit taxes interest. To measure the quality of the earnings: compare the cash flow from operations with the net earnings. If cash flow is less than ne then we consider the earnings to be of low quality. Operating activities: all the normal, day-to-day activities of every business. Cash-to-cash cycle is the outflow of cash that is followed by an inflow of cash. > acquisition of inventory: investing activities of acquiring property, plant and equipment, labours and inventory. > selling activity: pricing, advertising, hiring and managing, signing agreements-> sales contracts between buyers and the sellers. > collection of the sales price: in cash or account receivable, interest charges, risk, price allowance (adjustment), cash discount according to the promptness of the payment.
