Measuring and reporting financial performance
Trimis la data: 2010-11-21
Nota: 9.85 / 10
Autor: Ioana Moldot
Tipul fisierelor: doc
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The measurement of profit is probably the most important function of accounting. Investors, managers, bankers and others are interested in knowing how well a business is doing. The profit and loss account (income statement) shows the results of the flow of activity and transactions and is designed to report the profit performance of a business for a specific period of time, such as a year, quarter or month. The purpose of income statement is to measure and report how much profit the business has generated over a period.
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The total expenses relating to the period must also be calculated. An expense represents the outflow of assets (or increase in liabilities) which is incurred as a result of generating revenues.Expenses are goods and services consumed in operating a business or other economic unit.
The income statement for a period shows the total revenue generated during a particular period and deducts from this the total expenses incurred in generating that revenue. The difference between the total revenue and total expenses will represent either profit (if revenues > expenses) or loss (if expenses > revenues).
Where revenues and expenses are equal for the period, the business is said to break even.Profit (loss) = total revenue --- total expenses incurred to generate the revenue The income statement and the balance The profit and loss account can be viewed as linking the B.S. at the beginning of the period with the B.S. at the end of the period. Thus, at the commencement of business, a B.S. will be produced to reveal the opening financial position. After an appropriate period, an I.S. will be prepared to show the wealth generated over the period. A B.S will also be prepared to reveal the new financial position, at the end of the period covered by the I.S.
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