HA1020 Accounting Principles & Practices
Topic 2 – Part b
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HA1020 Accounting Principles & Practices
Topic 2
Measuring and Evaluating
Financial Position and
Financial Performance
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Introduction
This week we will cover the following:
• Types of Business Entities
• Basic Financial Statements
• Assumptions made and characteristics of
financial information
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Introduction
Part b
Part a will cover the following:
•
•
•
Types of Business Entities (part a)
Basic Financial Statements
• Balance Sheet (part a)
• Income Statement (part b)
• Statement of Changes in Equity (part b)
• Cash Flow statement (part c)
Assumptions made and characteristics of
financial information (part c)
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The Income Statement
• The income statement, also referred to as the
Statement of Financial Performance (or a Profit
& Loss Statement), presents the financial
efforts of an entity for a given period (generally
one year).
• It presents information on Revenue and
Expenses, the outcome being either a Profit or
a Loss .
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The Income Statement
Mariana’s GEN Y Fashions
Income Statement
For the year ended 30 June 2015
INCOME
Dress making revenue
$442,500
EXPENSES
Advertising expense
Materials expense
Salaries & wages expense
$ 20,250
91,710
127,800
Rent expense
40,260
Telephone expense
20,190
Light & Power expense
47,940
PROFIT
348,150
$ 94,350
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The Income Statement (cont.)
Income
• Inflows of or savings in outflows of economic
benefits that result in an increase in equity during the
reporting period
Expenses
• Decreases in equity representing the consumption or
loss of economic benefits in the form of reductions
in assets or increases in liabilities other than
distributions to owners
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The Income Statement
Commonly used income statement accounts
• Revenues
Income which arises from ordinary activities.
Revenue represents an increase in company
wealth. For example:
•
•
•
•
Sales revenue
Interest revenue
Rent revenue
Dividends revenue
• Gains
Income which does not arise from ordinary activities
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The Income Statement
• Expenses
• Cost of services and economic benefits
consumed or lost or liabilities incurred during
the period
• Expenses represent decreases in company
wealth that are incurred in order to earn
revenue.
• Expenses do not include payments or returns
to owners (i.e. withdrawals by sole traders or
partners, or, dividends to shareholders).
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The Statement of Changes in Equity
Mariana’s GEN Y Fashions
Statement of Changes in Equity
For the year ended 30 June 2015
Mariana’s, Capital - 1 July 2014
Net profit for the year
$ 237,330
94,350
$ 331,680
Less: Drawings
Mariana, Capital - 30 June 2015
45,000
$ 286,680
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The Statement of Changes in Equity (cont.)
Balance sheet
Income statement
Balance sheet
as at beginning of year
for the period
as at beginning of year
A1 – L1 = E1
I – E = Profit
A2 – L2 = E2
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2
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Statement of owner’s equity
for the period
E1 + Profit – Drawings = E2
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Link between balance sheet and income statement
Link between the balance sheet and the
income statement
Balance sheet
Assets = Liabilities +
Assets = Liabilities +
Equity
Op. Capital +
Revenue – Expense
– drawings
Income statement
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Link between balance sheet and income statement
End of part b
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