Accounting Exam #2 Chapter 9

Required Financial Statement, prepared for a period of time. Provides relevant information about the cash receipts and cash payments of an enterprise during a period
Two methods:
1)Direct
2)Indirect

Listing of receipts and payments for each of the three areas
1)Operating
2)Investing
3)Financing

Reports the cash exchanged during operating activities, cash exchanged in your day-to-day activities

Purchases and sale fo noncurrent assets, Investments in another company's stock (purchases and sales of assets, such as land, buildings, and equipment)

Primarily relating to changes in debt and equity (other than net income)

A required financial statement prepared for a period not a point in time, shows the net income of that company

The selling of a product or service generates revenue. Revenue can be recorded as cash or accounts receivable (Gains not included)

Expense is what it cost you to generate revenue
Ex: Decrease in cash, increase in liability
(recorded the same time the associated revenues are recorded, not always when the cash is paid out)
(losses not included)

Cost of the products that you are selling. Most significant expense for most manufacturing and merchandising companies

Amount of money available for general operating expenses
Gross Profit = Revenues - Cost of Goods Sold

Gross Profit Ratio/Margin = Gross Profit divided by Net Sales
- Shows you how much each dollar in revenue is profit
- Used to estimate profits during the year

Gross sales reduced by customer discounts, returns, freight out, and allowances

Expenses from the day-to-day operations
Include: advertising, general and admin, depreciation, salaries, utilities, rent

The money they make from the every day activities (why they are in business) Measures the managements ability to utilize firm's operating assets

Reported after income from operations, items that are not significant to the reader's understanding are combined in an "other" account
Ex: Interest expense, interest income, gains and losses