ACCT1021 Chapter Notes - Chapter 3: Cash Cash, Revenue Recognition, Cash Flow

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Chapter Three: Operating Decisions and the Accounting System
The Operating Cycle
Long term objective for company is to turn cash into more cash
oExcess cash must be generated from operations (activities that which the
business was established for)
Operating (cash to cash) Cycle: the time it takes for a company to pay cash to
suppliers, sell goods and services to customers, and collect cash from customers
oCompanies create incentives for people to pay stuff off faster in order to
shorten their operating cycle and increase cash flow
OC is repeated continuously until the company stops producing things
Time period assumption: the long life of a company can be reported in shorter
time periods
oIssues arise:
Recognition issues (when should they be recognized)
Measurement issues (what amounts)
Elements of Income Statement
Operating Revenues
oRevenues: increases in assets or settlements of liabilities from the major or
central ongoing operations of the business
oWhen someone pays for something before the good is delivered it goes
into unearned revenues since a good has not been provided for the
Operating Expenses
oExpenditure: outflow of cash for any purpose
oExpense: outflows or using up of assets/increasing liabilities from ongoing
operations incurred to generate revenue
General Admin
Losses/Gains of Disposable Items
Gain: result from disposing of assets for more than the
reported book value
Losses: result from disposing of assets for less than the
reported book cost value
Operating income: net sales less cost of goods sold and
other operating expenses
Other Items
oItnerst revenue: invest in other companies by purchasing stocks and bonds
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