Construct a complete income statement using cost and accrual basis.
Construction should include
- defining terminology used in income statements
- revenues (operating and non-operating)
- expenses (operating and non-operating)
- net income
- gross profit
- loss
- statement of cash flows
- differentiating between cost and accrual methods of accounting
- applying the four basic generally accepted accounting principles (GAAP) for preparing financial statements (e.g., historical cost principle, revenue recognition principle, matching principle, and full disclosure principle)
- determining revenue
- determining expenses
- determining net profit (earnings before interest and taxes [EBIT]).
Process/Skill Questions:
- How would one construct an income statement on a cash basis and then account for accrual adjustments?
- How would one compute management income?
- Why might a farm business use cost vs. accrual accounting?
- Why is the income statement referred to as a profit and loss statement?