Chapter 3 - Operating decisions and the accounting system. As noted in the introduction of this chapter, Chipotle Mexican Grill’s philosophy of “Food with Integrity” guides its operating decisions. Food with Integrity entails finding and serving high-quality sustainably and organically raised food. It also includes showing respect for animals, the environment, and people involved in the operations. | Chapter 3 Operating Decisions and the Accounting System McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3: Operating Decisions and the Accounting System As noted in the introduction of this chapter, Chipotle Mexican Grill’s philosophy of “Food with Integrity” guides its operating decisions. Food with Integrity entails finding and serving high-quality sustainably and organically raised food. It also includes showing respect for animals, the environment, and people involved in the operations. Understanding the Business How do business activities affect the income statement? How are these activities recognized and measured? How are these activities reported on the income statement? 3-2 2 In this chapter we will discuss how business activities affect the income statement of a company. We will also look at how these activities are recognized, recorded and measured. Finally, we will look at the preparation of an income statement. The Operating Cycle 3-3 3 The operating cycle begins with the purchase or manufacture of a product for sale. When products are purchased from suppliers, those suppliers must be paid. After a sale has been made, the company must deliver the product or service to the customer. Many business sales are made on credit. If credit is extended, payment must be received from customers. Once the cash has been collected from customers, the business cycle begins all over again. We never want to confuse the business operating cycle with the accounting cycle. Companies (1) acquire inventory and the services of employees and (2) sell inventory or services to customers. The operating (or cash-to-cash) cycle begins when a company receives goods to sell (or, in the case of a service company, has employees work), pays for them, and sells to customers, then ends when customers pay cash to the company. The length of time for completion of the operating cycle depends on the nature of the business. The Operating Cycle | Chapter 3 Operating Decisions and the Accounting System McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3: Operating Decisions and the Accounting System As noted in the introduction of this chapter, Chipotle Mexican Grill’s philosophy of “Food with Integrity” guides its operating decisions. Food with Integrity entails finding and serving high-quality sustainably and organically raised food. It also includes showing respect for animals, the environment, and people involved in the operations. Understanding the Business How do business activities affect the income statement? How are these activities recognized and measured? How are these activities reported on the income statement? 3-2 2 In this chapter we will discuss how business activities affect the income statement of a company. We will also look at how these activities are recognized, recorded and measured. Finally, we will look at the preparation of an income statement. The .
