Week 2

Statement of profit or loss

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

Total revenue

The total inflow of economic benefits for the period.

Expenses

The outflow of economic benefits incurred in generating revenue.

Revenue recognition under IFRS 15

Revenue will be recognised when control is passed to the customer.

Accrual-basis accounting

Accounting transactions must be recorded in the periods they occur, not when cash flows occur.

Unearned revenue

Cash received in advance which is recorded as a liability before the revenue is earned.

Matching convention

Expenses must be matched to the revenue they help to generate.

Accrued expenses

Expenses that have occurred but have not yet been billed or paid.

Prepaid expenses

Expenses paid before they are used, recognized as an asset.

Depreciation

The gradual reduction in value of a non-current asset over its useful life.

Straight line method of depreciation

Equal amounts of depreciation expense for each year the asset is held.

Reducing balance method of depreciation

A fixed percentage rate of depreciation applied to the carrying amount of the asset each year.

Bad debt

A debt for which there is no hope of recovery.

Doubtful debt

A debt where recovery is uncertain but still hoped for.

Accumulated depreciation

The total amount of depreciation that has been charged on an asset over its life.

Revenue formula

Total revenue = Total expenses incurred in generating that revenue.

Legal title

A factor indicating ownership that may signify that control has passed to the customer.

Risk and rewards

Factors that indicate when control of an asset has transferred to the customer.

Taxation as an accrued expense

Tax deductions from profit after interest, included as a liability even if unpaid.

Trade receivables

Amounts owed by customers for credit sales that are expected to be collected.