BU127 Chapter Notes - Chapter 3: Accrual, Asset Turnover, Asset
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BU127 Full Course Notes
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Document Summary
2012. income statement provides the basis for comparing analysts" projections to results of operations. How business activities affect the income statement: not a snapshot this is a report over a period of time. The operating cycle: operating (cash-to-cash) cycle: time it takes for a firm to pay cash to suppliers, sell goods/services. When they receive cash from customers, they pay off liabilities. Here, revenue is not earned, but a liability account (deferred revenue) is created. Cost of goods sold: cost of products sold to customers; importing supplies, handling, etc. Operating expenses: usual expenses (other than cogs) incurred in operating a business during a specific accounting period. Investment income: interest/dividends earned by purchasing shares in other firms. When the expense is incurred, prepaid expense is reduced, and an expense is recorded. So, assets are overstated and expenses are understated: payable recorded (liability) if cash if paid after the company receives goods/services, sometimes, expense incurred and cash paid on the same day.
