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Classification of final reports

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  • 1. RD1 Financial ReportsClassification and presentation of end of year financial reports•Income Statement•Balance Sheet
  • 2. Income Statement Is a report prepared outside the ledger for presentation to interested parties, showing details of the profit (or loss) for the year. 2
  • 3. Classification of revenues and expenses Revenues  Sales can be further classified to facilitate decision making  Eg sales of cosmetics, sales of perfumes  Pharmacist may classify their revenues as: - Dispensing fees - Sales - Miscellaneous items eg commissions from medical funds 3
  • 4.  Expenses  Generally classified into:  Selling and distribution  General and administrative  Finance 4
  • 5. Selling and distribution expenses All expenses incurred in promotion, selling and distribution  Promotion eg advertising  Actual selling eg sales salaries and commissions  Delivery eg delivery van expenses, depreciation on delivery van, freight/transportation outwards 5
  • 6. General and administrative expenses All expenses incurred in running the office an any other general expenses  Office expenses eg office wages, telephone  General expenses eg insurance, rates, loss on disposal of motor vehicle 6
  • 7. Finance expenses All expenses associated with either financing the enterprise’s activities or expenses incurred in collecting cash  Financing the enterprise eg interest on loans, bank charges  Collecting cash eg bad debts, credit card charges 7
  • 8.  Classification is useful  Assists with comparison of groups from one period to another or with other organisations  Changes can be analysed and decisions made based on spending patterns 8
  • 9. Balance Sheet A balance sheet demonstrates the relationship between assets, liabilities and owner’s equity.Oe = A - L 9
  • 10. Classification of assets, liabilities and owner’s equity Assets  Classified primarily on a time basis  Current  Non-current 10
  • 11.  Current assets  will be consumed or converted to cash within one accounting period from the current date.  Listed in order of liquidity (being able to be converted into cash)  Cash  Accounts receivable  Inventories  Prepaid expenses  Accrued revenues 11
  • 12.  Non-current assets  Further subdivided  Investment  Property, plant and equipment  Intangible 12
  • 13.  Non-current assets Investment  Anticipated to be held for longer than one accounting period  Held for revenue-producing purposes  Government bonds  Shares  Debentures  Can be classified as ‘current’ assets if there is a probability that they will be converted into cash in the following accounting period 13
  • 14.  Non-current assets Property, plant and equipment  Long-lived assets  Acquired for use in the operation of the business  Not intended for resale  Land  Buildings  Equipment  Furniture  Vehicles 14
  • 15.  Non-current assets Intangible  Lack physical substance  Patents  Copyrights  Trademarks  Franchises  leaseholds 15
  • 16.  Liabilities  Also classified on a time basis  Current  Non-current 16
  • 17.  Current liabilities  will be paid within one accounting period from the current date  Bank overdraft  Accounts payable  GST Clearing  Short-term loans  Accrued expenses  Unearned revenues  Listed in order of payment 17
  • 18.  Non-current liabilities  Period of indebtedness is longer than one accounting period  Long-term loans  Mortgages 18
  • 19.  Owner’s equity  Changes made to the capital account during the period are shown in the Balance Sheet  Opening balance  Add: additional capital contributions  Add: profit made during the period  Less: losses  Less: drawings 19