Adjustments For Repayments & Accruals

Question 1

Repayments

Answer 1

A repayment is when an expense is paid in advance of the periods to which it relates

The expense is taken out of expenses in the statement of comprehensive income and shown as a current asset in the statement of financial position

E.g. rental on a phone line paid quarterly in advance

Question 2

Accruals

Answer 2

An accrual is when an expense is paid after the periods to which it relates

The expense is added a an expense in the statement of comprehensive income and shown as a liability in the statement of financial position

E.g. electricity paid quarterly in arrears (money that is owed and should already have been paid)

Question 3

Purpose Of Statement Within Business & Externally

Answer 3

The statements of comprehensive income can be used internally by management to help measure the performance of the business and inform future decision making

It can also be used externally by potential investors and creditors e.g. when deciding whether or not to offer trade credit

Question 4

Analysis Of Statement

Answer 4

The statement of comprehensive income is analysed in a number of ways such as making:

• Comparisons between figures within the statement of comprehensive income e.g. a profit as a percentage of sales revenue
• Comparison between years i.e. gross profit this year as compared with gross profit for last year
• Intrafirm comparison to see how different aspects of the business are performing e.g. revenue for one product or branch compared with another profit or branch
• Interfirm comparisons to see how the business is performing in relation to it’s competitors

Question 5

Profit Quality

Answer 5

How sustainable the profit is e.g. increased sales or lower costs are seen as achievable in future years therefore the profit quality is seen as good

Profit quality can be used to evaluate the statement of comprehensive income to consider the accuracy of the information