BU387 Lecture Notes - Lecture 14: Cash Flow Statement, Net Income, Income Statement
Document Summary
Balance sheet: aims to capture the financing and investing activities. Income statement: aims to capture the operating and performance-related activities. Cash flow statement: looks at the interrelationship between the activities. Presentation of expenses: nature vs. function: nature. Depreciation, purchases of materials, transport costs, employee benefits. This method tends to be more straightforward since no allocation of costs is required between functions: function. Cost of sales, distribution costs, administrative costs, and other. This method requires more judgement since costs such as payroll and amortization are allocated between functions. At a minimum, this method requires that cost of sales be presented separately from other costs. Currently, income measurement follows a modified all-inclusive approach. This approach indicates that most items, even irregular ones, are recorded in income. Some exceptions include: errors in the income measurement of prior years, changes in accounting policies that are applied retrospectively.
