Income Statements - Lecture 4a Flashcards
What does the term final accounts mean?
The book – keeping and financial accounting process has, as one of its main
aims, the generation of a ‘final product’: the final accounts.
What 4 documents form the final accounts
- income statement
- balance sheet
- cash flow statement
- auditors report
Income statement can also be known as
Profit and loss account
What is the purpose of the income statement?
- to accurately represent the performance of the business over the previous period.
More specifically:
- to show the revenues and expenses by a business entity over a period, (usually 12 months) and how this figure
is arrived at.
Cost of sales calc:
Cost of sales = opening inventory + purchased - closing inventory
What is the extra section under net profit called?
appropriation section
What does the appropriation section show?
How profits are distributed.
Typical distributions are tax, dividends and retained.
Under IAS 38 there are 2 types of R & D costs:
Research: experimental or theoretical work to acquire new scientific or technical knowledge
‘Development’ costs: use of knowledge (acquired through research) to produce new or substantially improved products etc
What does IAS38 say about capitalisation?
- Research Costs are always an expense.
- Development costs can be an asset if certain criteria are met
What criteria need to be met for development costs to be an asset?
The criteria:
* Project must be clearly defined.
* Project must be technically feasible/ commercially viable.
* Expenditure on the project must be seperately identifiable
* Revenues will exceed costs
* Adequate resources can reasonably be expected to be available to allow competition
* Resources available to complete the project.
*The cost should be ‘written off’ (amortised) against the profits of the years in
which benefits are expected to arise.
