1. RD1 Financial Reports
Classification and presentation of end of year financial reports
•Income Statement
•Balance Sheet

2. Income Statement
 Is a report prepared outside the ledger for presentation
to interested parties, showing details of the profit (or
loss) for the year.
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3. Classification of revenues and
expenses
 Revenues
 Sales can be further classified to facilitate decision
making
 Eg sales of cosmetics, sales of perfumes
 Pharmacist may classify their revenues as:
- Dispensing fees
- Sales
- Miscellaneous items eg commissions from medical funds
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4.  Expenses
 Generally classified into:
 Selling and distribution
 General and administrative
 Finance
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5. Selling and distribution expenses
 All expenses incurred in promotion, selling and
distribution
 Promotion eg advertising
 Actual selling eg sales salaries and commissions
 Delivery eg delivery van expenses, depreciation on
delivery van, freight/transportation outwards
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6. General and administrative expenses
 All expenses incurred in running the office an any other
general expenses
 Office expenses eg office wages, telephone
 General expenses eg insurance, rates, loss on disposal
of motor vehicle
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7. Finance expenses
 All expenses associated with either financing the
enterprise’s activities or expenses incurred in collecting
cash
 Financing the enterprise eg interest on loans, bank
charges
 Collecting cash eg bad debts, credit card charges
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8.  Classification is useful
 Assists with comparison of groups from one period to
another or with other organisations
 Changes can be analysed and decisions made based on
spending patterns
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9. Balance Sheet
 A balance sheet demonstrates the relationship between
assets, liabilities and owner’s equity.
Oe = A - L
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10. Classification of assets, liabilities and
owner’s equity
 Assets
 Classified primarily on a time basis
 Current
 Non-current
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11.  Current assets
 will be consumed or converted to cash within one
accounting period from the current date.
 Listed in order of liquidity (being able to be converted into
cash)
 Cash
 Accounts receivable
 Inventories
 Prepaid expenses
 Accrued revenues
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12.  Non-current assets
 Further subdivided
 Investment
 Property, plant and equipment
 Intangible
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13.  Non-current assets
 Investment
 Anticipated to be held for longer than one accounting
period
 Held for revenue-producing purposes
 Government bonds
 Shares
 Debentures
 Can be classified as ‘current’ assets if there is a probability that
they will be converted into cash in the following accounting
period
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14.  Non-current assets
 Property, plant and equipment
 Long-lived assets
 Acquired for use in the operation of the business
 Not intended for resale
 Land
 Buildings
 Equipment
 Furniture
 Vehicles
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15.  Non-current assets
 Intangible
 Lack physical substance
 Patents
 Copyrights
 Trademarks
 Franchises
 leaseholds
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16.  Liabilities
 Also classified on a time basis
 Current
 Non-current
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17.  Current liabilities
 will be paid within one accounting period from the current
date
 Bank overdraft
 Accounts payable
 GST Clearing
 Short-term loans
 Accrued expenses
 Unearned revenues
 Listed in order of payment
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18.  Non-current liabilities
 Period of indebtedness is longer than one
accounting period
 Long-term loans
 Mortgages
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19.  Owner’s equity
 Changes made to the capital account during the period
are shown in the Balance Sheet
 Opening balance
 Add: additional capital contributions
 Add: profit made during the period
 Less: losses
 Less: drawings
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