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20 Cards in this Set
- Front
- Back
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Revenue recognition principle |
Requires revenue to be recorded when earned, not before or after |
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Expense recognition principle |
Requires expenses to be corded in the same period that these expenses generated revenue |
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Time assumption principle |
Accounting divides the economic life of a business into artificial time periods |
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Accrual basis |
Records the occurrence of transactions whether cash was involved or not |
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Single step income statement |
One step required to determine net income (NI=R-E) |
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Revenues |
Operating revenues, nonoperating revenues, and gains |
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Expenses |
COGS, operating expense, nonoperating expenses, and losses |
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Use single format because… |
No profit until total revenues exceed total expenses, and it is simple to read |
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Multi step income statement |
Highlights the components of net income. Key items are: sales, gross profit, operating expenses, nonoperating activities, and net income |
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Sales revenues |
Companies use it and deducts contra revenue accounts to arrive at net sales |
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Gross profit |
Net sales - cost of goods sold |
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Cost of goods sold is… |
An expense |
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Operating expenses |
Subtracted from gross profit to determine income from operations |
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Nonoperating activites |
Various revenues and expenses that are unrelated to the company’s primary line of operations |
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Nonoperating activites |
Various revenues and expenses that are unrelated to the company’s primary line of operations |
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Would a manager or potential investor want a single step income statement? |
Manager |
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Would a manager or potential investor want a multi step income statement? |
Potential investor |
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Comprehensive income statement |
Combines net income with the unrealized gains and losses not recognized in the income statement |
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Profitability ratios… |
Measures the overall sources of the company’s revenues and expenses |
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Average total SE |
= beg + end / 2 |
