Chapter 3
Statement of profit or loss and other comprehensive
income – statement that reflects the financial performance of
an entity
Financial performance of an entity can be measured in terms of the profit or the
loss for a specific accounting period
Financial performance represents the difference between income and expenses
for the period and has a positive or negative effect on the equity of an entity
- Profit = increases equity = income exceeds expenses
Profit = Income - expense
- Loss = decreases equity = expenses exceed income
Loss = Expenses – income
Equity
Capital = increases equity
Drawings = decreases equity
Income (look at diagram on pg 46)
INCREASES IN ASSETS
DECREASES IN LIABILITIES
INCREASES EQUITY
Cost of sales
Inventory’s cost is increased in the inventory account with the cost of getting the
inventory to a location and condition so that it is ready to be sold
DECREASED IN INVENTORY ACCOUNT AT THE COST (COST OF SALES) =
DECREASES EQUITY (as soon as inventory is sold)
Expenses (look at diagram on pg 51)
DECREASES IN ASSETS
INCREASES IN LIABILITIES
DECREASES EQUITY
Statement of profit or loss and other comprehensive
income – statement that reflects the financial performance of
an entity
Financial performance of an entity can be measured in terms of the profit or the
loss for a specific accounting period
Financial performance represents the difference between income and expenses
for the period and has a positive or negative effect on the equity of an entity
- Profit = increases equity = income exceeds expenses
Profit = Income - expense
- Loss = decreases equity = expenses exceed income
Loss = Expenses – income
Equity
Capital = increases equity
Drawings = decreases equity
Income (look at diagram on pg 46)
INCREASES IN ASSETS
DECREASES IN LIABILITIES
INCREASES EQUITY
Cost of sales
Inventory’s cost is increased in the inventory account with the cost of getting the
inventory to a location and condition so that it is ready to be sold
DECREASED IN INVENTORY ACCOUNT AT THE COST (COST OF SALES) =
DECREASES EQUITY (as soon as inventory is sold)
Expenses (look at diagram on pg 51)
DECREASES IN ASSETS
INCREASES IN LIABILITIES
DECREASES EQUITY
