acc403 mod 2 Revenue represents the benefit a company experiences

acc403

mod 2

Revenue represents the benefit a company experiences from operating its business. In accounting terms, revenues are increases in assets or decreases in liabilities resulting from business operations. Accrual accounting requires companies to recognize all revenue in the period in which it is earned regardless of when cash is collected.

Expenses are the sacrifices that have to be made in order to obtain revenues. In accounting terms, expenses are decreases in assets or increases in liabilities resulting from efforts to generate revenues. Accrual accounting requires that companies expenses in the period in which they are incurred regardless of when cash is paid.

The income statement compares revenues (benefits) with expenses (sacrifices) over some period of time (e.g., a month, a quarter, or a year). Net income is a measure of the extent to which benefits exceeded sacrifices. A net loss indicates that sacrifices exceeded benefits. The statement of cash flow explains the change in cash from the beginning to the end of the accounting period, including the change in cash from operating activities, investing activities, and financing activities.

Question:

Why may net cash flow from operating activities on the cash flow statement be different from the amount of net income reported on the income statement? Use a specific example to justify your answer.

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http://www.youtube.com/watch?v=mr1Mu_z_N4o What is cash flow?

http://www.youtube.com/watch?v=38WcNba0Ic0 Cash Flow 1 Statement of Cash Flows Format