Financial Reporting

Financial Reporting

• Definition: Financial reporting involves recording, analyzing, and summarizing transactions of a business.

Cost of Sales

• Concept: Cost of sales refers to the total cost incurred by a business to produce the goods sold.

• Example:

  • If a business generates 200,000 in sales, it is essential to consider the cost incurred to derive those sales, such as the cost of stock and delivery.

• Importance of Matching Costs:

• To accurately reflect profit, the cost of sales must match the revenue from actual sales, involving consideration of closing inventory.

• Closing inventory is to be removed from the profit and loss statement and recorded in the balance sheet (state of financial position).

Other Income

• Definition: Additional revenue that a business can earn aside from its core operations, called sundry income.

• Examples:

• Interest from bank accounts (bank interest received).

• Discounts received from suppliers (discounts receivable).

Statement of Financial Position

• Definition: A comprehensive overview of all assets owned and all liabilities owed by a business at a specified date, resulting from past events.

• Obligation reflects any debts or repayments the business has to make based on historical transactions (e.g., purchasing on credit).

• Components:

• Assets: Everything the business owns.

• Liabilities: Everything the business owes.

• Capital: Owner's equity in the business.

Noncurrent Assets

• Definition: Assets that are held in the business for more than twelve months.

• Examples include:

• Land and buildings

• Office equipment

• Motor vehicles

• Fixtures and fittings

• Importance: Understanding non current assets helps in evaluating the long-term viability and financial health of a business.