CHAPTER een a Sern ‘com SENET Revenues Experian fanaa tannncs pening Balance + Netincome vdends acaver Seer Assets | Labi Anise SYATIMUNT oF Cas F Operating activ ‘tovesting activi + Financing act = Change in cash + Starting ed Tht alance sheet and income Pcie ines Income I acome, ar Earnings, is the most important Measare oF 5 any's successor failure. Thus, the incentive to manage, cr « numbers ean be pow rnings by manipulating, th ares, manipulation car we earnings are based On es these reasons, ethieal behavior is extremely import.r measuring business income. eV rem PaaS a LO1 Define net income, and explain the assumptions underly Income measurement and their ethical application. (», LOZ Define accrual accounting, and explain how it is accomp! (pp.148-150) 103 Identify four situations that require adjusting entries, « Mlustrate typical adjusting entries. (ip. 150-100) 104. Propare financial statements from an adjusted trial bale (160-163) LOS Describe the accountin 19 cycle, and explain the purpos« closing entries. inp. 103-167) ii dag {06 Use accrual-based information to analyze cash flows 4 aadSION POINT > a User's FOCUS [ NETFLIX, INC. —— Je the world’s largest online entertainment subscription ser For a monthly fee, its subscribers have acc joan00v0 titles, which are shipped free of charge; with certain plans ilso have access to More than 5.000 movies online. Atthe end of ezouting patio, Netfli:has many transactions tht wil ect (jod5.! Two examples appear in the Financial Highight preci exper, which, though paid in the Pate acracs sullbenefit future periods and are therefore recorded as assets; and jexpenses, which the company has incurred but will not pay etic period. If prepaid expenses arid accrued expenses are Fok accounted for properly at the end of a period, Netfli’s income Wil be misstated. Similar misstatements can occur when a company received revenve that it has not yet earned or has earned revenue Gpatit has not yet received. if misstatements are made, investors will ‘pemisled about the company’ financial performance 53 to more than NETFLIX'S FINANCIAL HIGHLIGHTS: SELECTED BALANCE SHEET ITEMS (in thousonds) Assets 2008 2007 Prepaid expenses $8122 $516 Liabilities Accrued expenses $31,394 $36,466 Coa tte ee eters Pocutr a re the proper accounting pe ees otis Why are the adjustments sence a ueat TE cuca