Download 3- 10 Statement of Financial Performance (continued)

Chapter 3
Financial accounting reports
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Objectives
Describe the purpose and format of a
Statement of Financial Performance.
• Explain the difference between gross profit
and net profit.
• Differentiate between cash and accrual
accounting systems.
• Explain the matching principle and the need
for balance day adjustments.
•
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Objectives (continued)
Define depreciation, closing inventory,
prepayments, accruals and doubtful debts.
• Describe the purpose and format of a
Statement of Financial Position.
• Prepare a classified Statement of Financial
Performance and a classified Statement of
Financial Position from the Trial Balance of a
sole trader, with no balance day adjustments.
•
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
3- 3
Objectives (continued):
Explain the use of an Appropriation
Statement for a partnership and a company.
• Describe the purpose and format of a
Statement of Cash Flows.
• Explain the differences between company
financial reports prepared for internal
purposes, and those prepared to meet
statutory requirements.
•
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Statement of Financial
Performance
•
•
•
•
•
aims to match the revenue of the business
with the expenses associated with earning
that revenue for the relevant period of time
is produced for a particular Period of time
is generally produced for a year at 30 June
(end of the Financial year)
can be produced at more frequent intervals
determines the profit or loss of the
business.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
3- 5
Statement of Financial
Performance (continued)
Two types of businesses
•
Service firms
–
•
less complicated statements
Trading/manufacturing firms
–
more complicated statements.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Statement of Financial
Performance (continued)
Service Firms
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Statement of Financial
Performance (continued)
Trading firms
•
COGS
–
•
Beg Inv + Purchases + buying exp – (Closing Inv + Purch
returns)
Gross profit
–
Net sales less COGS
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
3- 8
Statement of Financial
Performance (continued)
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
3- 9
Statement of Financial
Performance (continued)
Trading firm
• Other revenue
–
–
•
all other revenue not from the sale of inventory
e.g. rent, interest
Selling expenses
–
–
all expenses related to the sale of inventory
e.g. advertising, salesperson salaries.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
3- 10
Statement of Financial
Performance (continued)
•
Admin expenses
–
–
•
all expenses related to the running of the
business
e.g. office wages, rent, electricity
Financial expenses
–
–
all finance expenses
e.g. discount allowed, bad debts.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
3- 11
Statement of Financial
Performance (continued)
•
Net profit
–
Gross profit + other revenues less all other
expenses
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
3- 12
Statement of Financial
Performance (continued)
•
Abnormal revenues and expenses
–
–
–
Items that normally appear on the Statement of
Financial Performance.
Due to some abnormality such as the magnitude
of the items, they are not typical of the average
operations of the business.
They are reported separately.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
3- 13
Statement of Financial
Performance (continued)
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
3- 14
Statement of Financial
Performance (continued)
•
Gross profit
–
–
•
only applies to a business involved in the
trading of stock
shows the difference between sales revenue
and the direct costs that are associated with
purchasing the stock of goods that have
been sold.
Net profit
–
is the difference between all revenues and all
expenses for the period.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Cash and accrual accounting
•
Cash accounting systems
–
•
involve recording transactions when the flow
of cash occurs.
Accrual accounting
–
–
records both revenue and expenses as they
occur regardless of whether the flow of cash
accompanies the transaction
e.g. credit sales are recorded as revenue and
credit purchases as an expense.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Balance day adjustments
•
Matching principle
–
–
–
involves dividing the continuous life of a
business into set periods
enables revenues earned and the expenses
incurred can be matched within each period
causes adjustments to be needed at the end of
the period to determine profit correctly.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
3- 17
Definitions
•
•
•
•
•
Depreciation
Closing inventory
Prepayments
Accruals
Doubtful debts
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Depreciation
Depreciation is the annual allocation of the
cost of a non-current asset over its useful life.
•
Expense
–
•
is the purchase cost.
Accumulated depreciation
–
appears in the Statement of Financial Position as a
‘contra’ account or negative asset.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Depreciation (Continued)
General Journal entry
•Depreciation expense
•Accumulated depreciation
Debit
Credit
Straight-line
•Cost allocated evenly over it’s useful
life.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Depreciation (continued)
•
Reducing balance
–
the cost of the asset is depreciated more in the
earlier years of the asset using a percentage to
reduce the book value annually.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Depreciation (continued)
•
Units of use method
–
the use of the asset is allocated relative to
its life.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Closing inventory
Inventory balance at the end of the year is:
• determined by a stock-take
• shown in the Statement of Financial
Position as a current asset.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Prepayments
Where an expense is paid before it is incurred:
• the un-incurred portion of the prepayment is
treated as an asset and recorded in the
Statement of Financial Position
• the incurred portion is recorded in the
Statement of Performance as an expense.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Accruals
Where an expense has been incurred but is
yet to be recorded for the accounting
period, the expense needs to be increased
to reflect the true amount of the expense.
• An expense is recorded in the Statement of
Financial Performance and a current liability
in the Statement of Financial Position.
•
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Doubtful debts
•
Where a portion of debtors turn out to be
non-payers, a Provision for doubtful debts
account will need to be created in the
Statement of Financial Position.
•
Doubtful debts are recorded in the Statement
of Financial Performance as an expense.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Statement of Financial
Position
Prepared at the end of the financial year, 30
June XXXX
• includes Assets, Liabilities and Owners
Equity
• reflects the financial position of a business
on the last day of the period.
•
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Presentation of Statement of
Financial Position: T-Format
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
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Statement of Financial
Position: Narrative-Format
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
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Appropriation Statement
An Appropriation Statement:
• details how the profit of a partnership is
company are distributed
• provides owners with an explanation of how
the net profit of the business is distributed.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Appropriation Statement
(continued)
In an Appropriation Statement for Partnerships:
• net profit is divided between partners
• partners’ entitlements need to be calculated
beforehand
• entitlements include interest on capital, and
interest on loans
• taxation of partnerships is done at individual
partners’ level.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Appropriation Statement
(continued)
An Appropriation Statement for Companies
shows the amount of:
• company tax payable
• dividends for shareholders
• retained profits.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Cash Flow Statement
A Cash Flow Statement:
• is prepared at the end of the financial year
• enables interested parties in the business
to assess the sources of cash for the
business
• shows inflows and outflows of cash for the
business.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
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Cash Flow Statement Example
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Financial reports
Companies prepare the following statements
and reports:
• Statement of Financial Performance
• Statement of Financial Position
• Statement of Cash Flow
• Director’s Report
• Auditor’s Report
• Notes to accounts.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Financial Reports: Statement
of Financial Performance
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
Slides prepared by Rick Nieuwenhoven
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Financial Reports: Statement
of Financial Position
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by
Jopling, Lucas and Norton
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