Measuring Elements of the Statement of Profit or Loss Flashcards
1
Q
How should we measure revenue?
A
- Based on sales earned during the year
- NOT based on cash received from customers
- ^^ Difference is due to sale on credit
2
Q
How should we measure cost of sales?
A
- Cost of goods sold
- Cost of services provided
- Matches against revenue earned
- NOT the same as purchases in the year
- ^^ Difference is due to inventory
3
Q
How should we measure distribution costs and admin expenses?
A
- Based on services received during the year
- NOT based on payments made
- ^^ Differences arises mainly because services are received over a period of time
4
Q
How should we measure finance costs?
A
- Calculated by applying the interest rate to the outstanding balance on the loan
5
Q
How should we measure tax expense?
A
- Based on the profit for the year and the tax rules
- Generally paid in the following year
