The Accounting Game
- Interest expense shows up on the Income Statement as an expense
- What makes an expense an asset? When we pay in advance and it has value INTO future accounting periods.
- So, we account for everything as it happens–or, as accountants as, as it accrues.
- So, on the Accrual Method, sales are recognized not as the money is received but when it is what? Earned.
- Is it a Sale?
- Is it a Purchase? OR
- Is it an Expense?
- Your decision should help you complete the Income Statement.
- So, you always go to the Ending Balance Sheet from the last week to find your Beginning Inventory for this week.
- And do you remember what numbers should match on the Balance Sheet and Income Statement? Net Profit should equal Earning Week to Date.
- Aunt Jane says the Income Statement is a different story. She says that since there is no Ending Inventory to subtract out costs, services companies really only have Sales and Expenses. That makes it really easy to do your Income Statement.
- Remember, Cost of Services is any cost directly related to providing the service and Expenses are all of the cost of doing business not direectly related to providing the service.
- The only reason a business would choose LIFO is to SAVE TAXES!
- The Cash Statement records only the casg that comes in and the cash that goes out.
- Do you know what it’s called when you buy an asset and add it to the Balance Sheet? Capitalization of the asset
- Remember, depreciation is a non-cash expense.