Shapiro Chapter 2 Solutions

An income statement, also known as a profit and loss statement shows how much money a company has spent over a period of time. It also shows the costs and expenses that are associated with earning that revenue. It is an important measure of the company’s profitability. The simple building blocks of a net income formula are revenues minus expenses equal net income.

Profitability is an important criterion to judge the success of the business. Accounting has a big role in determining business profitability. Using accounting we can maintain proper records of all business dealings, which later on assists in computing business profitability. It is only accounting due to which we can easily make financial statements at the end of each accounting year and find out the profit earned or loss suffered in the business. Thus, Accounting provides us significant information which we further analyze and come up with material conclusion or decision.

The difference between economic profit and business profit is that in economic profit, profit or loss is calculated by subtracting opportunity cost of the inputs from the revenue of sales. Business profit is the difference between the total revenue and total costs incurred to earn that

How did the corporation perform the past year overall in terms of return on investment, market share, and profitability?

The returns received by concentrate producers differ from those received by bottlers for several reasons …

(Ohara, 2007) Most financial statements are made public for the benefit of stakeholders and potential investors. The bottom-line is that financial statements are the main source for analyzing how well a company is operating. The income (or profit and loss) statement is simply a report card of how much activity (revenue) was performed in the period, how profitable that activity was (gross profit/loss), and what it cost the contractor to run the business (overhead). (Murphy, 2006)

Describe three examples of transactions that would affect a firm's income statement. For each transaction, identify if the transaction has a positive or negative effect on the firm's net income. Revenues is the amount of money a company receives for goods or services rendered. This type of transaction has a positive effect on net income. Expenses are costs that a business obtains through its operations to earn revenue. This has a negative effect on net income. Profit is a financial gain after expenses and revenues are taken into account. This has a positive effect on net income.

The income statement (IS) also known as the profit & loss statement provides the net gain or net loss of a business entity. The importance of the income statement is to evaluate profitability of a company (Finkler, Jones, and Koyner, 2013). The best use of the IS,

(Alternative Measures of Profit) Why is it reasonable to think of normal profit as a type of cost to the firm?

2. What do the results say about how firms in this industry can deliver strong financial returns in different ways?

know what it is exactly, in order to assess the extent to which the accounting profit reflects

This income statement tells how much money a company has brought in (its revenues) how much it has spent (its expenses) and the difference between the two (its profit). The income statement show’s a company’s revenues and expenses over a specific time frame. This statement

Net income is total revenues minus total expenses incurred to generate those revenues all within the same reporting period. Net income is calculated by the accrual accounting methodology meaning that the expenses incurred to generate revenues are reported at the same time the related revenues are reported. Both revenue recognition and expenses paid may not coincide with actual cash transactions. Net cash from operating activities, on the other hand, is not determined by accrual but by

return on investment for each division and the company as a whole along with the behavioral

According to Stolowy and Lebas (2006, p.10) 'Accounting has two key objectives: to facilitate value creation by supporting resource allocation and acquisition, decision making and to measure and report to stakeholders the amount of value created during a given period. Accounting is about information. To count is to measure and quantify. To account for something is to acknowledge its existence and describe it. Accounting does both: it is a method of counting and a method of accounting for economic parameters describing the life of an enterprise (be it 'for ' or 'not-for ' profit). Accounting is about providing users with information about economical and financial aspects of the life of an enterprise. '