ACCT 2101 Chapter Notes - Chapter 3: Accrual, Trial Balance, Retained Earnings
Document Summary
How do business activities affect the income statement. Business long-term objective: turn cash into more cash via operations. Operating (cash-to-cash) cycle: time it takes for a company to pay cash to suppliers, sell goods/services to customers and collect cash from customers. Time period assumption: the long life of a company can be reported in shorter time periods. This is why income is measured over quarters; to provide decision makers with information. Revenues: increases in assets or settlements of liabilities from central ongoing operations of business. Recognized at the time a good/service was provided. Be careful of unearned revenue because technically no revenue has been earned. When customer provides cash for good/service that has not been provided. Expenditure: any outflow of cash for any purpose. Expenses: outflows/use of assets or increases in liabilities from ongoing operations incurred to generate revenues during the period. Not all cash expenditures are expenses; expenses are necessary to create revenue.
