Historical Cost - ✔✔-Financial statements report companies' resources and
obligations at an initial historical cost. This conservative measure precludes
constant appraisal and revaluation
Revenue Recognition Principle - ✔✔-requires that companies recognize
revenue in the accounting period in which the performance obligation is
satisfied
-Revenues must be recorded when earned and measurable
-Does not matter when cash transfers occur
-until that order is shipped to a customer and collection from that customer,
who used a credit card, is reasonably assured
Matching Principle - ✔✔-Costs of a product must be recorded during the
same period as revenue from selling it
Income Statement - ✔✔-is a financial report that depicts the operating
performance of a company (i.e. revenues less expenses generated - i.e.
profitability) over a specific period of time (typically a quarter or year).
, -analysts can use THIS to identify the components and sources ("drivers")
of net earnings.
Revenues/Net Revenues (Net Sales) - ✔✔-Total dollar payment for goods
and services that are credited to an income statement over a particular time
period
-A company may have other income streams, which are not related to its
main operations
Ex. Interest income earned from investments and Income received from a
legal settlement
Cost of Goods Sold - ✔✔-represents a company's direct cost of
manufacture (for manufacturers) or procurement (for merchandisers) of a
good or service that the company sells to generate revenue
-DOES NOT INCLUDE
Ex. corporate overhead, marketing and administrative expenses, research
and development, and salaries of employees not associated directly with
the manufacture or procurement of a good or service
Gross Profit (Gross Margin) - ✔✔-Revenues - Cost of Goods Sold
Selling, General & Administrative (SG&A) - ✔✔-Operating costs not directly
associated with the production or procurement of the product or service
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