Chapter 5: Analysis of Income Statement Accounts

Vocabulary flashcards for key terms related to the income statement and related accounting concepts.

Income Statement

A financial statement that indicates a company's earnings or profit as a result of operating activities and reports amounts for a period of time, typically one year.

Income Statement Basis

Revenues earned and expenses incurred to earn revenues.

Relationship between Balance Sheet and Income Statement

Links the balance sheet at the beginning of a period with the balance sheet at the end of the period; increased by net income and decreased by dividends.

Revenue Principle

Record revenues when earned, when an exchange has taken place, collection is probable and the earnings process is nearly complete.

Sales Taxes

Collected from customers and remitted to the taxing authority; recorded as a liability.

Servers' Tips

Service gratuities that belong to employees. Are liabilities if paid via checks or cards.

Operating Expenses

Day-to-day expenses incurred in operating the business, expired costs of assets, costs of assets that are consumed, and the cost of sales.

Cost of Sales Expense

Cost of inventory used; cost of food and beverage sales; does not include cost of room sales.

Cost of Goods Sold

Cost of raw materials (food) used to make a sale to a guest.

Periodic Inventory System

Purchases are recorded to a purchase account, but withdrawals are not recorded; physical counts of inventory are made at the end of the accounting period.

Perpetual Inventory System

Purchases and withdrawals are made directly to inventory during the period, providing more timely information about inventory.

Operating Expenses

Expenses that include payroll, payroll taxes, employee meals, advertising, supplies, kitchen fuel, utilities, and telephone.

Fixed Expenses

Expenses that include rent, property taxes, property insurance, interest, depreciation, and amortization.

Income Taxes Expense

Levied by the government on the income of a corporation.

Depreciation

A cost allocation process that systematically and rationally matches acquisition costs of operational assets with periods benefited by their use.

Book Value

Asset’s Cost – Accumulated depreciation