Accounting

Financial statements provide the primary source of info ceeded by owners and managers to make decisions on the future activity of a business.

Reporting financial info the same way from one fiscal period to the next is an application of the accounting concept Adequate Disclosure.

An income statement is used to report a business's financial progress.

An income statement for a merchandising business has 3 man sections: revenue, cost of merchandise sold section, and expenses section.

Cost of merchandise sold is also known as cost of goods sold.

Revenue less cost of merchandise sold equals net income.

Calculating a ratio between gross profit on sales and net sales enables management to compare its performance to prior fiscal periods.

Total expenses on an income statement are deduted form the gross profit on sales to find net income before federal income tax.

For a merchandising business, every sales dollar reported on the income statement includes only 3 components: gross profit on sales, total expenses, and net income.

When a business's expenses are less than the gross profit on sales, the difference is known as a net loss.

Increasing sales revenue while keeping cost of mercandise sold the same will increase gross profit on sales.

Most businesses correct an unacceptable component percentage for gross profit by simply increasing the markup on merchandise purchased for sale because an increased selling price will always increase profit.

Individual amounts reported on an income statement have little meaning without being compared to another amount.

A statement of stockholders' equity contains 2 major sections: 1.) capital stock and 2.) retained earnings.

The beginning balance of a capital stock account is the amount of capital stock issured at the beginning of the year.

The amounts in the capital stock section of hte statement of stockholders' equity are obtainedfrom the general ledger account, Capital Stock.

Net income is shown on the last line of a statement of stockholders' equity.

Some income may be distributed as dividends to provide stockholders with a return on their investments.

Data needed to prepare the liabilities section of a balance sheet are obtained from a work sheet.

Ruled double lines across both amount columns below the Assets section and below the Stockholers' Equity section show that the assets equal liabilities plus owners' equity.