Chapter 3: The Income Statement
Wednesday, September 7, 2022 3:47 PM
• Operating activities
- Operating activities: day-to-day functions involved in running a business
- Occur regularly and often have a shorter duration of effect
- Include buying goods and services from suppliers and employees/selling
goods and services to customers/ and collecting cash from customers
- Operating cycle: period from buying goods and services through to collecting
cash from customers
- Operating activities are the primary source of revenues and expenses
• Income statement accounts
- Income statement: summarizes the financial impact of operating activities
undertaken by the company during the accounting period
- Includes revenues/expenses/and net income
- Revenues: the prices a business charges its customers when it provides goods
or services
- Revenue is reported when the company fulfills its promise to transfer
control of a good or service to a customer, regardless of when the
company is paid by the customer
- Expenses: costs of operating the business, incurred to generate revenues in
the period covered by the income statement
- Expenses are reported when the company uses something, regardless of
when the company pays for the resource
- Net income: calculated by subtracting expenses from revenues; it is a total
- Summarizes the overall impact of revenues and expenses in a single
number
- Indicates the amount by which stockholder's equity increases as a result
of a company's profitable operations
- Time period assumption: allows the long life of a company to be reported in
Wednesday, September 7, 2022 3:47 PM
• Operating activities
- Operating activities: day-to-day functions involved in running a business
- Occur regularly and often have a shorter duration of effect
- Include buying goods and services from suppliers and employees/selling
goods and services to customers/ and collecting cash from customers
- Operating cycle: period from buying goods and services through to collecting
cash from customers
- Operating activities are the primary source of revenues and expenses
• Income statement accounts
- Income statement: summarizes the financial impact of operating activities
undertaken by the company during the accounting period
- Includes revenues/expenses/and net income
- Revenues: the prices a business charges its customers when it provides goods
or services
- Revenue is reported when the company fulfills its promise to transfer
control of a good or service to a customer, regardless of when the
company is paid by the customer
- Expenses: costs of operating the business, incurred to generate revenues in
the period covered by the income statement
- Expenses are reported when the company uses something, regardless of
when the company pays for the resource
- Net income: calculated by subtracting expenses from revenues; it is a total
- Summarizes the overall impact of revenues and expenses in a single
number
- Indicates the amount by which stockholder's equity increases as a result
of a company's profitable operations
- Time period assumption: allows the long life of a company to be reported in
