Accounting Reports

Classified Reports: Are reports which have been modified in presentation in an attempt to highlight the key aspects of the business, which provide more detail for decision making. For example, in each specific business area ratios and trends can be established, and managerial responsibilities can be accounted for.

Classified Statement of Financial Position:

Is a report which illustrates the position of the business in terms of the accounting equation (A=L+OE) at a static point in time. It provides information regarding the ‘stability’ of the business. The classified version has the following characteristics…

• Current and Non-Current assets and liabilities are distinguished in an attempt to highlight short-term and long-term stability.
• A Current asset/liability is below 12 months in its expected duration.
• A Non-Current asset/liability is above 12 months in its expected duration.
• Assets are listed in descending order of liquidity. (For example, Cash at Bank -most liquid- is always listed first.)
• Liabilities are listed in descending order of maturity (i.e. in descending order of repayment.).
• Forms of presentation include[1]:

A=

L + OE

OE = A - L

A = L + OE

OE = (CA-CL)[2] + (NCA-NCL)

Classified Statement of Financial Performance:

Is a report which illustrated the trading activities of a business for a particular reporting period, calculating the net profit/loss for that period. It provides information regarding the ‘performance’ of the business. The classified version is written as follows…

(+) Revenue : The trading revenue earned from the sale of goods.

(-) less Cost of goods sold : The trading expenses, or the cost incurred in buying stock and getting it in a position to be sold. (Eg: cost of sales, cartage in, customs duty etc.)

(=) Gross Profit: The trading profit, which is difference between sales and cost of goods sold. It shows % mark-up on goods.

( + ) add/less Stock loss/gain: Is an unusual trading expense/revenue, and is hence treated separately.

It also provides additional information to management by highlighting stock loss amount in trading, and allows for corrective action to be taken (Eg: more security).

(=) Adjusted Gross Profit: The gross profit altered after taking into account the stock loss/gain.

(+) add other revenue : The non-trading revenues, or revenues earned by the business that are

not generated in the sale of goods. (Eg: interest revenue, discount      revenue etc…)

(-) less other expenses:  The non-trading expenses, or all expenses associated with the operation of the business, but not directly involved with the purchase of stock. (Eg: telephone, electricity, discount expense etc…)

(=) Net Profit/Loss Overall income earned/lost after all expenses have been deducted from all revenues for the period. It is the overall performance of the business.

**Evaluating net profit:

-Previous periods (profit trends over time).

-Budgeted profits.

-Industry averages.

-Analytical ratios[3].

Classified Statement of Cash Flows:

Is a report which concentrates solely on the cash flows in and out of the business, and summarises the overall change in the businesses bank balance for a period. The classified version is separated into three major areas as follows…

1. Cash flows from operating activities: All receipts and payments that are a direct result of the day-to-day operations of the business.

2. Cash flows from investing activities: All receipts and payments that are a direct result of the sale and purchase of NCA’s and other non-cash investments.

3. Cash flows from financing activities: Refers to cash flows that have occurred due to the changes in a firms financial structure. (i.e. All receipts and payments that are a direct result of borrowing and repaying “debt”, with debt referring to liabilities and owners equity.)

Full example: Classified statement of cash flows for month ending -/-.

Cash flows from operating activities:

Inflows…                                 xxx

Outflows…                               xxx

Net cash flows from operating activities:                     xxx

Cash flows from investing activities:

Inflows…                                 xxx

Outflows…                               xxx

Net cash flows from investing activities:                     xxx

Cash flows from financing activities:

Inflows…                                 xxx

Outflows…                               xxx

Net cash flows from financing activities:                     xxx

Net change in cash held:                                  xxx

Bank balance at start (-/-)                                 xxx

Bank balance at end (-/-)                                 xxx

**Schedule: A statement only showing cash inflows and outflows relating to one particular area

(Eg operating, investing or financing).

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[1] All the diagrams that show only A and L are actually classified into CA and NCA, and CL and NCL.

[2] Referred to as working capital, which is discussed later in Unit 4, Analysis and Interpretation.

[3] Discussed later in Unit 4, Analysis and Interpretation.

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Ashish Sharma completed his VCE in 2005 and achieved a perfect score of 50 in Accounting. These are his notes, which he has generously donated to the VCE help community.

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