AFM101 Chapter Notes - Chapter 3: Asset, Gross Margin, Gross Profit

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM101
• Professor: Thomas Manning

Document Summary

Chapter 3: operating decisions and the statement of earnings. 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. Periodicity assumption: means that the long life of a company can be reported in shorter periods. Revenues: increases in assets or settlements of liabilities from ongoing operations. Expenses: decreases in assets or increases in the liabilities to generate revenues during the period. Gross profit (or gross margin): net sales less cost of sales. Earnings from operations (operating income): net sales ess cost of sales and other operating expenses. Gains: increases in assets or decreases in liabilities from peripheral transactions. Losses: decreases in assets or increases in liabilities from peripheral transactions. Earnings before income taxes (pretax earnings) revenues minus all expenses except income tax expense. Accrual basis accounting: records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments.