| A | B |
|---|
| Income Statement | Contains revenues, expenses, gains, and losses |
| Revenues | Increases in assets or settlement of liabilities from ongoing operations |
| Expenses | Decreases in assets or increases in liabilities from ongoing operations |
| Gains | Increases in assets or settlement of liabilities from peripheral transactions |
| Losses | Decreases in assets or increases in liabilities from peripheral transactions |
| Earnings Per Share | [Net Income] / [Weighted Average # of common shares outstanding] |
| Income Tax Expense=? | [Income before Income Taxes] X [Tax Rate] |
| When do you recognize assets, liabilities, revenues, and expenses? | When the transaction that causes them occurs |
| Recognize Revenue 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 |
| If cash is received before the company delivers goods or services... | The LIABILITY account UNEARNED REVENUE is recorded= When this happens, we DEBIT the CASH account and CREDIT the UNEARNED REVENUE liability account |
| When the product is delivered or the service provided... | UNEARNED REVENUE is reduced and REVENUE is recorded |
| When cash is received on the date the product is delivered or the services provided... | The journal entry is to DEBIT cash and CREDIT revenue |
| If cash is received after the company delivers goods or services... | We establish an ASSET account called ACCOUNTS RECEIVABLE= The journal entry is to DEBIT accounts receivable and CREDIT the revenue account |
| When the customer finally pays the cash... | The ACCOUNTS RECEIVABLE is eliminated |
| When do we recognize Expenses? | In the same period in which the Revenue that was generated by those expenses is recognized (REGARDLESS of when cash is paid) |
| If cash is paid before goods are received or services are provided... | The company establishes an ASSET account called PREPAID EXPENSE= The journal entry on the date of transaction is to DEBIT prepaid expense and CREDIT cash |
| When the expense is incurred... | PREPAID EXPENSE is reduced and an EXPENSE is recorded |
| When cash is paid on the date the expense is incurred... | The journal entry is to DEBIT the expense and CREDIT cash |
| If cash is paid after the company receives goods or services... | A liability account called PAYABLE is established= The journal entry is to DEBIT an expense account and CREDIT a liability account for the payable |
| When cash is paid.... | The PAYABLE is reduced/eliminated |
| *****SLIDE 28***** | *****SLIDE 28***** |
| Retained Earnings | Dividends decrease (DEBIT SIDE)= Net Income Increases (CREDIT SIDE) |
| Net Income | Increases retained earnings |
| Revenues | Increase net income |
| Expenses | Decrease net income |
| How are financial statements Prepared | 1) Income Statement= 2) Statement of Retained Earnings= 3) Balance Sheet= 4) Statement of Cash Flows |
| Income Statement | [Revenues] - [Expenses] = Net Income |
| Statement of Retained Earnings | Ending Retained Earnings = [Beginning Retained Earnings] + [Net Income] - [Dividends Declared] |
| Balance Sheet | Assets= Liabilities + Stockholders' Equity |
| Net Income | Comes from the Income Statement |
| Ending Balance from the Statement of Retained Earnings | Flows into the equity section of the Balance Sheet |
| Total Asset Turnover Ratio=? | [Sales (or Operating) Revenues] / [Average Total Assets] |
| Total Asset Turnover Ratio | Measures the sales generated per dollar of assets |
