Week 2

Statement of profit or loss

Measures and reports how much profit the company has generated over a period.

Total revenue

The total amount of money generated from sales and services, minus expenses.

Revenue

Inflow of economic benefits; increase in assets or a decrease in liabilities from sales of goods, fees for services, or subscriptions.

Expenses

Outflow of economic benefits; decrease in assets or an increase in liabilities, such as wages, rent, or costs of goods.

Accrual-basis accounting

Accounting transactions should be recorded in the periods they occur, rather than when cash flows related to them occur.

Recognition of revenue

Companies should recognize revenues when services are performed rather than when cash is received.

Accounting equation for statement of profit or loss

Assets = Equity + Revenue - Expenses + Liabilities.

Profit calculation

Profit is calculated as revenue minus expenses.