Company must match expenses with revenues in an accounting period Expenses

Company must match expenses with revenues in an

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Company must match expenses with revenues in an accounting period Expenses classified A. Nature of expense method - Items aggregated according to their nature (depreciation, employee benefits etc.) and are not reallocated among various functions within the entity B. Function of expense method - Classifies expenses according to their function as part of cost of sales or distribution of administrative costs - Disclose cost of sales under this method separately - Provide more relevant information, but allocation costs to functions may
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require arbitrary allocations Income Statement Following line items must be disclosed separately on the face of income statement - Revenues - Expenses - Financing costs expense - Shares of net profits or losses - Income tax expense - Profit or loss; attributable to equity interest, parent entity or income tax Significant items When a revenue or expense item is extra ordinary in terms of size, nature or incidence in explaining the financial performance of a company, it must be disclosed separately in the notes in the financial report . - Write-down of assets - Litigation settlements - Operation restricting - Investment disposals Statement of Changes in Owner’s Equity Summarises transactions affecting OE during an accounting period Bridges the gap between Income statement and Balance sheet Provides an overall better picture of the company’s financial activities for an accounting period According to 106 AASB 101: An entity shall present a statement of change in equity showing in the statement: a) Total comprehensive income, separately showing total amounts of attributable to owners of interests b) Each component of equity highlights the effects of retrospective application c) For each component, a reconciliation between the carrying amount at the beginning and end of the period ‘What if’ analysis Analysing accounting information to tell stakeholders what difference accounting policy choices make to financial statements Compared to other entities with different policies (analysts and bankers)
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Deciding upon accounting policies and particular business decisions (managers) Examples: - What if I used FIFO instead of LIFO - What if I depreciated over 20, not 10, years Managers would be interest on effect on net profit, balance sheet figures, and particular ratios CASH FLOW STATEMENT AND ANALYSIS: DIRECT METHOD Contents of a statement of cash flows CASH FLOW STATEMENT: INDIRECT METHOD Indirect Method Adjust Net Profit After Tax to derive Cash Flow Operations (ONLY) AASB 107 - Disclose a note showing a reconciliation of net profit and cash from operations Investing activities Buying and selling of NCA lending/collecting money, PPE Inflows: Receipts from selling non-current assets Outflows: Purchasing non-current assets Operating activities General operations buying, selling, delivery e.g. admin Inflows: receipts, receivables, payables Outflows: purchasing inv., paying taxes, utilities, interest Financing activities change in capital structure Owner invest., borrowing Inflows:
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