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2010-10-12 10:16:24

Chapter 3
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  1. 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.
    • Begin:
    • Purchase/ manufacture goods and service
    • Pay suppliers
    • Deliver or provide service
    • Receive payments
    • To beginning again
  2. Time Period assumption
    Indicates that the long life of a company can be reported in shorter time periods.
  3. Operating Revenues
    • Increases in assets or settlements of liabilities from ongoing operations of the business.
    • Operating Revenue: From the sale of goods or services.
    • -Often cash or accounts receivables is increased.
    • unearned or deferred revenue: when a customer pays for good or services in advance, goes to liability account. Revenue isn't recorded yet, just cash and liability.
    • Ex. Restaurant Sales Revenue, Franchise Fee Revenue
  4. Operating Expenses
    • Expenses: decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period.
    • -When an asset such as equipment or supplies is used to generate revenues during a period, all or a portion of the asset's cost is recorded as an expense.
    • -When an amount is incurred to generate revenues during a period, such as using electricity, whether already paid or to be paid in the future, an expense results.
    • Ex.Cost of Sales, Salaries Expense, Rent Advertising, general and administrative, depreciation expense
  5. Gians
    an increase in assets or decrease in liabilities from a peripheral transaction.
  6. Losses
    Decreases in assets or increases in liabilities from a peripheral transaction.
  7. Peripheral activities
    • Normal but not central transactions.
    • Ex. Investment income, interest expense
  8. Cash Basis accounting
    • Revenues are recorded with cash is received, and expenses are recorded when cash is paid, regardless of when the revenues were earned or the expenses incurred.
    • We do not use this!
  9. Accrual Accounting
    Revenues are recognized when they are earned and expenses when they are incurred. Doesn't matter when cash is recieved.
  10. Revenue Principle
    • Is recognized when:
    • 1) Delivery has occurred or services have been rendered
    • 2) There is persuasive evidence of an arrangement for customer payment
    • 3) The price is fixed or determinable.
    • 4) Collection is reasonably assured
  11. When cash is received BEFORE the goods
    • Debit Cash (A+)
    • Credit Unearned Revenue Account (L+)

    • Then when it is paid off, you will
    • Debit Liabilities (L-)
    • Credit Revenue (R+)
  12. When cash is received AFTER the goods
    • Debit Accounts Receivable (A+)
    • Credit Revenue (R+)
    • When cash is received:
    • Debit Cash (A+)
    • Credit Accounts Receivable (A-)
  13. Matching Principle
    • Costs incurred to generate revenues be recognized in the same period.
    • As with revenues, expenses are recorded as incurred, regardless of when cash is paid.
  14. Cash paid BEFORE expense is incurred to generate revenue
    • Debit Prepaid expense (A+)
    • Credit Cash (A-)
    • When paid, Debit Expense (E+)
    • Credit Prepaid expense (A-)
  15. Cash is paid AFTER the cost is incurred to generate revenue
    • Debit Expense (E+)
    • Credit Payable (L+)
    • When cash is paid, Debit Payable (L-)
    • Credit Cash (A-)