Income Statements and Statement of Changes in Equity Flashcards
What is financial performance?
how successful business operations were in a period of time
Income - Expenses
What is it also known as?
‘Profit or Loss Statement’
‘Statement of Comprehensive Income’
What is its purpose
Measures financial performance during a period
Difference b/w trading and servicing business for Income Statements
Trading = sell tangible items –> ‘less cost of sales’
Servicing don’t
Cash accounting
Record income when you receive it in cash and record expenses when you pay in cash
Accruel accounting
Income is recognised and recorded WHEN IT HAS BEEN EARNED and Expenses have been recognised when it has been INCURRED
Disadvantage in Cash accounting
misrepresentative of performance when cash is paid in advance, or when delay occurs
Advantages of Accruel accounting
Presents users with relevant overview of performance during period –> Focuses more on when EVENT occurs
When would Cash and Accrual Accounting have the same results
Work performed and paid at same time
Work performed and paid later
When would there be a DISCREPENCY b/w Cash and Accrual Accounting
Cash is paid first, before work is performed
What is Statement of Changes In Equity
- Owner’s wealth has been impacted during accounting period
- Equity influenced through profit/loss, additional capital and drawings/dividends
