Chapter 3: The Income Statement

These flashcards cover key terminology and concepts from Chapter 3 on the Income Statement, focusing on accounting principles, definitions related to revenue and expenses, and the methods of accounting.

Income Statement

A financial statement that shows a company's revenues and expenses during a specific period.

Accrual Accounting

An accounting method where revenues are recorded when earned and expenses when incurred, regardless of cash receipts.

Revenue Recognition Principle

The principle stating that revenues are recognized when goods or services are provided to customers.

Expenses

Costs incurred by a business in the process of earning revenue.

Net Profit Margin

A profitability ratio calculated by dividing net income by revenues.

Deferred Revenue

Money received by a company for a service or product that has yet to be delivered or performed.

Debit

An entry on the left side of an account, representing an increase in assets or expenses.

Credit

An entry on the right side of an account, representing an increase in liabilities, equity, or revenues.

Matching Principle

The accounting principle that dictates expenses should be matched to revenues in the period when they are incurred.

Cash Basis Accounting

An accounting method where revenues and expenses are recorded when cash is actually received or paid.

Performance Obligations

Promises made by a seller to transfer goods or services to a customer.

Transaction Price

The amount of consideration a seller expects to be entitled to in exchange for transferring goods or services.