BOOKKEEPING 04

MEASURING

FINANCIAL
PERFORMANCE

Presented by:
MS. ALICIA G. BAÑAS
FINANCIAL
PERFORMANCE
Measuring and Reporting

Income Statement – formal statement that

shows the results of operations of a business
entity for a given period of time.
It shows whether the profit-goal of the
company is attained or not.

01
PERFORMANCE
Net profit or net income is frequently
used as a measure of the performance
of a business entity.
The computation of net income or loss
of a going-concern is an important
function of financial accounting.

02
INCOME
Income > Expenses = Net Income

Income < Expenses = Net Loss

03
ELEMENTS OF
THE INCOME
STATEMENT

Income
Nominal
accounts
Expenses

04
INCOME
It represents increases in economic benefits, during the
accounting period, related to increases of assets and decreases
of liabilities, or both.
It will ultimately increase the owner’s equity.
The definition of income encompasses both revenues and gains.
Income also includes unrealized gains, for example, gain arising
from the revaluation of marketable securities, or gain resulting
from an increase in the value of property, plant and equipment.

05
REVENUES
These are inflows of assets or outflows of
liabilities arising from the primary activities of a
business entity (e.g. sales revenue, service
revenue, professional fees)

GAINS
These may also arise from activities that are
considered as ordinary though these activities
are not part of the normal operations of the
business entity.
These may also result from disposing assets
other than the ones that are being sold in the
normal course of operations of the business
entity. 06
EXPENSES
These are decreases in economic benefits
during the accounting period, in the form
of outflows or depletions of assets or in
the form of incurring liabilities.
These will ultimately decrease owner’s
equity.

07
LOSSES
These also represent decreases in
economic benefits and as such, they are no
different in nature from expenses.
Losses arise from activities that are
considered as ordinary although they are
not part of the normal operations of the
business entity.
These may also result from accidents or
disasters such as fire and flood and disposal
of non-current assets.

08
CONTENTS OF INCOME
STATEMENT
Heading Body
1st line – registered name of the 1. Revenues and other operating income
business entity 2. Operating expenses
3. Results of operating activities
2nd line – title of the statement 4. Finance Costs
“Income Statement” 5. Income tax expense
6. Net income or net loss for the period
3rd line – period of time it covers.

09
OPERATING EXPENSES
Cost of Sales General and
Administrative Expenses
Marketing and Distribution
Expenses (Selling Expenses) Office salaries expense
Store supplies expense Rent expense
Advertising expense Depreciation – office equipment
Delivery expense Doubtful accounts expense
Salesmen’s commission Representation expense

10
FORMS OF
INCOME
STATEMENT
Nature of Expense Method
Expenses are aggregated
according to nature.

Function of Expense Method

Expenses are classified according to
their functions, such as Cost of Sales,
Distribution Costs, General and
Administrative Expenses.
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BOOKKEEPING 04

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