COMMERCE 1AA3 Chapter Notes - Chapter 2: Accounts Payable, Cash Flow, Cash Flow Statement
6 Dec 2016
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Income statement the first financial statement prepared. Measures the financial success or performance of the company. Prepared in accordance with the accrual concept i. e. revenues and expenses are recorded separate from whether cash for them have been received or paid out. Revenues are recorded when earned even if cash is not received and expenses are recorded when incurred even if not paid for. They are defined as increases in net income, retained earnings, and equity from sale of goods or services. Installment sales structured in that way cannot be recognized fully and must be recognized as the service is being performed and as the amounts are collected. Receiving a deposit in advance for a service to be performed later is not a revenue but rather a liability called unearned revenues (discussed later). They are defined as reductions in net income, retained earnings, and equity. Expenses are necessary to be incurred to generate revenues.
