Introduction:
As a future leader, you will be contributing to the ongoing financial success of an organisation so will need to know relevant financial information to make the most effective business decisions.
Knowing your Statement of Financial Position in terms of what you own as assets, owe as liabilities, owe to the owners as equity, through the Balance Sheet, as covered in previous module is important. However, this statement will not help with profitability information, which is where the Statement of Profit and Loss covers Revenue and Expenses. Profit is a measure of accounting return and is determined as income less expenses.
It is important to measure financial performance periodically so that users, both internal and external, can assess the profitability of the entity. As you may recall from the previous module, the primary objective of preparing financial statements is to provide information that is useful for decision making. Knowledge of profit or loss is crucial in assessing past performance and forming an opinion as to expected future performance for a for-profit entity. Entities required to comply with accounting standards must also present a statement of comprehensive income and a statement of changes in equity.