Sonia: Generally Accepted Accounting Principles and Income Tax- Income Essay

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UNIT 4: THE INCOME STATEMENT
21. THE INCOME STATEMENTThis document lists the revenues and expenses of the financial year and, from the diference between both, it reports the profit or loss of the period∑ REVENUES(∑ EXPENSES)PROFIT / LOSS OF THE PERIOD
Decreases in Equity Other than:-Payment of dividends.-Capital reductions.andVoluntary consumption of AssetsIt is received a compensation.ImmediatelyNot immediately It is paidNot paid▼ASSET▲LIABILITYThe consumption of the asset takes place in the future, once the debt is cancelled.2. THE CONCEPT OF EXPENSE3
1714502449830Why does the company incurr in expenses? Because the company expects to receive REVENUES from the received compensation A loss imply:A decrease in Net Equity and a consumption of AssetsBut NOT VOLUNTARY and WITHOUT COMPENSATION5Example 1: Payment of the electricity bill.It takes place a reduction in the Net EquityIt takes place a consumption of assets imediately (Decrease in cash)¿Compensation?: The right to use the localExample 2: The amount for the office rent is owedIt takes place a reduction in the Net EquityThe consumption of assets doesn´t take place imediately (liabilities increase)¿Compensation? Electricity supplyExample of the expenses4
Increase in Net EquityOther than:Owner´s contributionsandIncrease in assetSelling merchandise, performing services, received dividends or interests from the financial investments…In the form of cashIn the form of accounts receivableIncrease in cash It is collectedThe increase in cash will take place in the moment in time in which the debtor cancels the debt3. THE CONCEPT OF REVENUE6
The purpose of RevenuesTo compensate expenses and to leave a positive surplus or profit in the company.Example.: The salaries and wages are expenses.The company expects to obtain revenuesfrom the workforce7
Once revenues and expenses are defined we can obtain the following conclussion:If REVENUES exceed EXPENSES▲ NET EQUITY AND▲ ASSETS>▼ NET EQUITY AND▼ ASSETSPROFIT▲ WEALTH OF THE COMPANY8
If EXPENSES exceed REVENUES▲ NET EQUITY AND▲ ASSET▼ NET EQUITY AND▼ ASSETLOSS<▼ WEALTH OF THE COMPANY9
- The…