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Revenue, Expense and Profit Unit Twelve Learning Objectives Unit Twelve to make the entries for sales revenues under a perpetual inventory system; to state the deductions from sales revenues; to explain the revenue recognition principle. Warming-up Unit Twelve Magazines that receive subscriptions in advance must record the receipts as unearned revenues. Likewise, airlines that receive ticket payments in advance must record the receipts as unearned revenues until the passengers use the tickets. The tuition you pay at the beginning of each term is an example of a deferred expense to you, as a student. Text Skimming Ask students to read the text quickly and ask them some questions. 1. How many essential characteristics are there in revenue? What are they? 2. How many methods are there to account sales discount? What are they? 3. What are two important distinctions between revenues and gains and between expenses and losses? 4. What is expense? What does expense include? Unit Twelve Vocabulary enhancement render ongoing overnight attorney real estate stem associate peripheral extraordinary 增强(作用),促进(作用) 提出,开出 前进,发展 在短时内 律师 不动产;房地产 出自,来源于 关联 外部的 特别的,突出的,临时的 Presentation Revenue Revenues are the inflows or other enhancements of assets of an entity or settlements of its liabilities ( or a combination of both ) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations. Revenues have two essential characteristics: they arise from an enterprise's primary earnings activities; Accounting theorists sometimes describe as or " entity accomplishments" they arerevenue recurring continuing in nature. or " the product of the enterprise". (1)Sales Revenue The sales of goods occurred between two parties. From the seller's point of view, sales are made to create revenue, which is the inflow of assets resulting from the rendering of services or the sales of goods to customers. (2) Recording Gross Sales Sales revenues, like service revenues, are recorded when earned. This is done in accordance with the revenue recognition principle. 收入确认原则 Sales may be made on credit or for cash. Every sales transaction should supported by a business document that provides written evidence of the sale. Cash register tapes provide evidence of cash sales. A sale invoice provides support for a credit sale. The original copy of the invoice goes to the customer. A copy is kept by the seller for use in recording the sale. The invoice shows the date of sale, customer name, total sales price, and other relevant information. 收银机 Entries should be made to record the sales. The first entry records the sale: Cash ( or accounts receivable, if a credit sale) is increased by a debit, and sales is increased by a credit at the selling price of the goods. The second entry should record the cost of goods sold. (3) Deduction from Sales Revenue On the seller's book, sales discounts and sales returns and allowances are deducted from sales revenue to yield net sales. These are contra revenue accounts to the sales account. In a purchase transaction, the seller may offer the customer a cash discount for the prompt payment of the balance due. From the seller’s point of view, this is called a sales discount. Like a purchase discount, a sales discount is based on the invoice price less returns and allowance if any. Like purchase transaction, there are basically two methods of accounting for sales discounts: ⑴ the gross price procedure ⑵ the net price procedure. (4)Revenue Recognition Revenue is realized when a sale is completed by the delivery of a product. Because of this, the word “sales” is often used along with revenue, as in the phrase “sales revenue”. When is revenue recorded in the accounting records? The revenue realization principle states that a business should record its revenue at the time service are rendered or goods are delivered to customers. In short, revenue is recorded when it is earned, without regard as to when the cash is received. Four revenue transactions are recognized in accordance with the revenue realization principle: Companies recognize revenue from selling products at the date of sale. This date is usually interpreted the date of delivery to customers. Companies recognize revue from service provided, when services have been performed and are billed. Companies recognized revenue from permitting others to use their assets, such as interest, rent, as the time passes or as the assets are used. Companies recognize revenue from disposing of assets other than products at the date of sales. Expenses Expenses are outflows or other using up of assets or increase of liabilities ( or a combination of both )during a period from producing or delivering goods, rendering services, or carrying out other activities that constitute the entity's major or central operations. Expenses include the cost of employee’s salaries, advertising, rent, utilities, and the gradual depreciation of fixed assets. All these costs are necessary to attract and serve customers and thereby earn revenue. Expenses are sometimes described as “entity efforts” or “entity sacrifices”associated with the earning of revenue. Expenses are classified into three categories: ⑴ Cost directly associated with the revenues of the period. ⑵ Cost associated with the period on some basis other than a direct relationship with revenue. ⑶ Cost that cannot, as a practical matter, be associated with any other period. Gains Gains are increases in owner's equity or net assets that result from peripheral or incidental transactions by an entity. In other words, gains arise from transactions and economic events that do not result in either revenues or owner investment. Losses Losses are decreases in owner's equity or net assets arising from peripheral or incidental transactions by an entity. Losses arise from transactions and economic events that do not result in either expenses or distributions to owners. There are two important distinctions between revenues and gains and between expenses and losses. First, both revenues and expenses related to the major or primary operating activities of an enterprise, whereas both gains and losses related to peripheral activities. Second, revenue and expenses refer to gross inflows and outflows, whereas gains and losses refer to net inflows and outflows. Net Income (or Net Losses) Net income (or net loss) refers to the periodic change in owner's equity or net assets of an entity as a result of transactions and other economic events that result in revenues, expenses, gains and losses. Mathematically, net income (or net loss) is determined by revenues, expenses, gains and losses as follows:Net income ( or net loss) = revenues - expenses + gains - losses. If revenues and gains exceed expenses and losses, the result is called net income; if expenses and losses exceed revenues and gains, the difference is called net loss. Notes Unit Twelve Revenues are the inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations. 收入是指企业在销售或生产产品、提供劳务或其他维持企 业持续正常运行的主要经营活动时所形成的资产流入或增 加以及债务的清偿(或二者的结合)。 realization principle 实现原则,也称收入实现原则 这是用来指导收入确认的会计原则。它的基本含义是,只 有当赚取收入的过程基本完成,收入的金额可以计量,金 额的收取基本确定的时候才应该在帐面上反映收入。 Notes Unit Twelve Expenses are outflows or other using up of assets or increase of liabilities (or a combination of both) during a period from producing or delivering goods, rendering services, or carrying out other activities that constitute the entity’s major or central operations. 费用是指企业在生产或销售商品、提供劳务或其他日常活 动中所发生地资产的外流或消耗费或债务的增加(或二者 的结合)。 Revenue, Expense and Profit Unit Twelve Review 1. Ask students to read all the new words and phrases. 2. Review the language points. Unit Twelve Exercises II. Terms Study. Match the terms in column A with the definitions in column B. A 1. revenues 2. Sales Returns and Allowances 3. expenses 4. net income 5. gains B A. periodic change in owner’s equity or net assets of an entity as a result of transactions and other economic events that result in revenues, expenses, gains and losses B. increases in owner’s equity or net assets that result from peripheral or incidental transactions by an entity C. inflows or other enhancements of assets of an entity or settlements of its liabilities D. outflows or other using up of assets or increase of liabilities E. a contra revenue account to Sales Exercises Unit Twelve III. Decide whether the following statements are true or false. Write T for true and F for false. ( F )1. An expense always causes an increase in owner’s equity. ( T ) 2. Expenses are sometimes described as “entity efforts” or “entity sacrifices” associated with the earning of revenue. ( F ) 3. Gains arise from transactions and economic events that result in either revenues or owner investment Exercises Unit Twelve ( T ) 4. To determine profit (a net amount) from sales, it is necessary to subtract cost of goods sold from sales revenue. ( T ) 5. As in current practice, the term earnings sometimes will be used as a synonym for gross income, or as a way of capturing the elements (i.e., revenues, expenses, gains and losses) that make up income. Exercises Unit Twelve IV. Translation the following into Chinese. 1. Expenses are classified into three categories: (1) Cost directly associated with the revenues of the period. (2) Cost associated with the period on some basis other than a direct relationship with revenue. (3) Cost that cannot, as a practical matter, be associated with any other period. 费用被分为三类: (1)是一段时期直接与收入相关的费用。 (2)是一段时期内与收入没有直接关系的费用。 (3)形成实际事物,而不与任何特定时期相关的支出。 Exercises Unit Twelve 2. As in current practice, the term earnings sometimes will be used as a synonym for net income, or as a way of capturing the elements (i.e., revenues, expenses, gains and losses) that make up income. 在实际操作中,收益这个词有时也被当作同义词来代替净收 入,或者用来像其他要素(收入、费用、利润、损失)一样 用来计算净收入。 3. The items included in net income are displayed in four classifications: continuing operations, discontinued operations, extraordinary items and cumulative effects of changes in accounting principles. 净收入基本上在以下4种情况下表现出来:持续经营活动, 不连续的经营活动,额外项目和会计准则改变的累计影响。 Assignments Do Ex. Ⅱ in the exercise books.