topic 1 Essay

Submitted By parveen18
Words: 633
Pages: 3

The balance sheet a general purpose accounting report that states an entities assets, liabilities and owners equity at a particular point in time

elements of financial reports:
Assets- a resource controlled by the entity as a result of past events from which future economic benefits are expected. Liabilities- a present obligation of the entity arising from past events which is expected to result in an outflow of economic benefit. owner’s equity- the residual interest in the assets of the entity after liabilities are deducted

The income statement a report prepared at the end of each reporting period. Uses the same information as is summarised in the P+L summary except it is set up In a more informative manner to convey meaningful information to the users of the report (relevance) it also emphasises the presentation of understandability.

Purpose of the income statement- to report on the performance of the business over a given period. In order to do so the report states the revenues and expenses with the outcome of a net profit or loss.

Link between income statement and the balance sheet
The net profit or loss by a business affects the owners equity as reported in the balance sheet ( as profit is a part of owners equity )

revenue- an inflow of economic benefit in the form of an increase in an asset or a decrease in a liability that increases owners equity (except for capital) expenses- an outflow of economic benefit or reduction in inflow, in the form of a decrease in an asset or increase in a liability that reduces owners equity (except drawings)

the purpose of the cash flow statement the role of the cash flow statement is to complete the picture provided by the general purpose accounting reports. Its concentrates on of cash in and out of the business entity.

Headings under the cash flow statement.
Cash flows from operating activities- cash flows that result from the provision of goods and services in the day to day operations of a business.
Cash flows from investing activities- cash flows that relate to the sale or purchase of a non current asset.
Cash flows from financing activities- cash flows that occur as a result of changed in the financial structure of the business.

The statement of changes in equity
Owners equity at the start plus profit minus drawings equals owners equity at end.
The profit form this comes from the income statement
Owners equity at start and end comes from the balance sheet at the beginning of the year and end of the year.

Accounting underlying assumptions (principles)