Statement of Financial Performance Flashcards
What is the Statement of Financial PErformance
Measures and repots financial progress or wealth of the business over a period of time- usually a year
- Presents all items of income and expenses recognised over the period
Main elements
Income
Cost of goods
Expenses
What is income?
increases in economic benefits
- in the form of inflow of assets or decreases in liabilities resulting in equity
What are expenses?
An ouflow of assets incurred in the process of carrying on a business and generating income
What is the classified format of the income statement?
Expenses are grouped into meaningful categories
- Selling
- Administration
- Finance
- Other expenses
Income is categorized as
- Operating
- non operating
What is gross profit?
The amount of revenue remaining after paying for the cost to purchase or manufacture goods.
The amount of revenue remaining to cover expenses of the business and to provide a profit to the owners.
How is gross profit calculated?
Net Sales minus Cost of Goods Sold
Cost of goods calculation
Purchases
PLUS Opening Inventory
LESS Closing Inventory
What is depreciation?
Attempts to allocate the cost of the asset over its useful life.
- It is a measurement of how much economic benefit as asset has consumed up during a period.
Straight line depreciation calculation
Cost of asset minus residual value divide by useful life
What is accrual accounting
Accurately matches revenue earned with the expenses incurred to generate that revenue.
- Recognises income on the basis that it has been earned
- Recognises expenses on the basis that they have been incurred
Why use accrual accounting
Gives a more accurate account of the financial position of the business as it allows revenue to be recognized when it has been realised.
Accrual accounting effects two entries. What are they
Outstanding amounts are added to the Income Statement expense and are added to the Balance Sheet as a current liability under accruals
Prepaid amounts are deducted from the income statement and are added to the balance sheet as a current asset under prepayments
FORMAT OF INCOME STATEMENT
Sales
Less Sales Returns
NET SALES
Less Cost of Good Sold
GROSS PROFIT FROM OPERATING
Plus Other Income
- Discounts received
- Commissions
GROSS PROFIT
Less Operating Expenses
Selling Expenses - Advertising - Sales Wages - Depreciation on selling equipment TOTAL
Admin Expenses - Insurance - Rent - Admin Wages - General Expenses - Depreciation on office equipment - Printing and Stationery TOTAL
Finance Expenses - Bad Debt - Interest - Discounts Allowed TOTAL
TOTAL OPERATING EXPENSES
NET PROFIT FROM OPERATING
Less OTHER EXPENSES
- losses on sale of assets
NET PROFIT OR LOSS
Explain Accurals and Prepayments
Payments owing get added to expense figure
Prepayments get deducted from expense
