BU127 Chapter 3: Chap 3
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BU127 Full Course Notes
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Bu127 chap 3 operating decisions and the income statement. Lo # 1: describe a typical business operating cycle and explain the necessity for the periodicity assumption. Lo # 2: explain how business activities affect the elements of the income statement. Elements of the classified income statement: single step format: list all revenues followed by all expense items and then shows the difference between revenues and expenses, multistep format: multiple subtotals. We say these are peripheral transactions. e. g. earning investment income, or incurring interest expense are not the central operations of most businesses. Gain: increases in assets or decreases in liabilities from peripheral transactions. Weighted average number of shares outstanding during the period. Lo # 3: explain the accrual basis of accounting and apply the revenue principle and the matching process to measure profit. Cash basis accounting: when cash transactions are recorded immediately. Revenue is recorded when cash is received. Expenses are recorded when cash is paid.
