Please help solve the problem according to the book.

• How does Peter Drucker define profit?

• Define the term “cash basis accounting”.

• Define the “matching principle”

• Describe the delivery company that purchased a truck in January and how it applies to the matching principle.

• Explain why the Income Statement does not account for the inflows and outflows of cash.

• Define the purpose of the Income Statement.

• List three alternative names for the Income Statement

• What time periods can the Income Statement cover?

• Public companies must follow GAAP in compiling financial statements TRUE/FALSE

• What is a Pro-forma Income Statement?

• Sales and Revenue on the Income Statement mean the same thing TRUE/FALSE

• Define the term “Cost of Sales”.

• Why are footnotes considered to be an important part of the financial statements?

• What is the “One Big Rule” when reading financial statements?

• In its simplest form, when can a company recognize a sale?

• In the example in the book, how did the software company manipulate revenue recognition?

• What is “channel stuffing”?

• “The most common source of accounting fraud has been and probably always will be _____________

• Define “deferred revenue”.

• “Above the line” on the Income Statement refers to what?

• “Below the line on the Income Statement refers to what?

• Define “Operating Expenses”

• Operating expenses are often thought of and referred to as ________________

• How did Waste Management Inc. use depreciation to manipulate earnings?

• Why is depreciation and amortization considered a “non-cash expense”?

• Give an example of a “one time charge”.

• Expenses should be listed on the Income Statement to assist management in analyzing the business. TRUE/FALSE

• Gross Profit varies by industry. TRUE/FALSE

• Compare the gross profit of a grocery business to a jewelry store.

• Define Operating Profit or EBIT

• List three ways Operating Profit can measure how well or poorly a company is being managed

• Define EBITDA

• Why is EBITDA favored over EBIT by financial analysts?

• Define “Net Profit”

• List the three legitimate fixes to a low net Profit

• What are the negative consequences of reducing Operating Expenses as a strategy to increase Net Profit?

• How can “exchange rates” adversely affect Net Profit?

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