FAC1502: Study Unit 3 – Financial Performance – The Result

This is not only about learning what the Statement of Profit or Loss and other Comprehensive Income should look like, but also about understanding the elements that are included in it.

Before you continue, you can download the PDF notes below:

Handout: SU3 – Financial Performance Notes (PDF)

Handout: SU3 – Format of Statement of Profit & Loss (PDF)

What do the users need to know about your Financial Performance?

When preparing the Statement of Profit or Loss and other Comprehensive Income, there are certain types of information you need to include. You need to understand what they are, and why they’re there.

Lecture 1: A Basic Business Example of Financial Performance (INFOGRAPHIC)

As you manufacture your jeans and sell them, what financial information needs to be created? 

What information should be taken into account when calculating the financial performance / result for the year?

Lecture 2: The Types of Financial Information that must be Included (VIDEO)

Financial Performance:
  • Income
  • Expenses

The Elements of the Statement of Profit or Loss and other Comprehensive Income

We need to make sure we know what classifies as Income and Expenses, and how this affects Equity.

Lecture 3: Profit = Income – Expenses (VIDEO)

Profit is calculated as Income less expenses.

In order for us to calculate this correctly, we need to know what classifies as Income and Expenses

Financial Performance:

  • Profit or Loss

Lecture 4: Examples of Income and Expenses (READ)

Revenue earned from ordinary activities:

  • Fees Earned
  • Sales
  • Interest Income
    • If you’re in the business of making loans, then this is your ordinary activity
    • If you’re not in the business of making loans, then this will be Other Income, not Revenue
  • Dividend Income
    • If your business is owning shares, then this is your ordinary activity
    • If not, then this will be Other Income, not Revenue
  • Rent Income
    • If you’re in the business of owning property and renting them out, then this is your ordinary activity
    • If not, then this will be Other Income, not Revenue
  • Commission Income
    • If your business is earning commission on sales, then this is your ordinary activity
    • If not, then this will be Other Income, not Revenue

Normal Expenses:

  • Purchases of inventory
  • Transport costs on purchases and sales
  • Rent expense
  • Salaries and wages
  • Depreciation
  • Administrative expenses
  • Water & electricity
  • Advertising
  • Interest expense
  • Insurance

There are other types of Revenue and Expenses, these are just some examples!

Lecture 5: Relationship between Performance and Position? (VIDEO)

The Profit increases the Equity. Make sure you’re comfortable with this relationship!

Lecture 6: Income and Expenses: Differentiating between Ordinary Activities and Other Gains or Losses (INFOGRAPHIC)

This infographic explains the difference between Revenue and Gains; Expenses and Losses.

Revenue and Expenses relate to transactions occurring during the ‘normal course of business’.

The Statement of Changes in Equity and Notes to the Financial Statements

An introduction to two other components of the Financial Statements.

Lecture 7: Statement of Changes in Equity

This part of the Annual Financial Statements includes information on the changes in ownership and equity from year to year.

It will indicate the Equity at the beginning of the year, any additional capital contributions, any drawings taken out by the owners, and add or deduct the profit or loss for the year. This will leave you with the end of year balance on Equity.

Basic format:

Equity (beginning of year)

+ Additional Contributions during the year

– Drawings during the year (deducted from equity)

+ Profit for the year (or Deduct: Loss for the year)

= Closing balance on Equity

Lecture 8: Notes to the Financial Statements

Not everything can be communicated by numbers. Some information, or additional information about the basis for the calculations and measurements is given in the Notes to the Financial Statements.

We will not be going into detail on these notes until later in this module.