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Operating Decisions and the Accounting System

After studying this chapter, you should be able to:

3-1Describe a typical business operating cycle and explain the necessity for the time period assumption.

3-2Explain how business activities affect the elements of the income statement.

3-3Explain the accrual basis of accounting and apply the revenue realization and expense matching principles to measure income.

3-4Apply transaction analysis to examine and record the effects of operating activities on the financial statements.

3-5Prepare a classified income statement.

3-6Compute and interpret the net profit margin ratio.

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