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Chapter 4: Classification
Chapter 4
Classification
Key Knowledge
• Classification of the Profit/Loss Statement: distinction between
gross and net profit, trading and non trading expenses.
• Classification of the Balance Sheet: current and non current assets and liabilities.
• Classification of the Cash Flow Statement: operating, investing and financing
activities.
Key Skills
• Identify, classify and record financial data and information.
• Use correct accounting terminology.
• Demonstrate an understanding of the concepts and principles underlying the recording
and presentation of accounting data and information.
• Apply theoretical knowledge to simulated situations.
• Prepare financial reports.
Summary Exercise 4
A comprehensive summary exercise using one business scenario, of the concepts and
skills involved in chapter 4.
Overlap Exercise 4
A comprehensive exercise using one business scenario, testing the entire accounting
process covered so far in DOUBLE PROFIT.
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Chapter 4: Classification
Accounting reports such as the Cash Flow Statement, the Profit/Loss Statement and
the Balance Sheet can become more informative for stakeholders through the use
of CLASSIFICATION. Classification means grouping or sorting accounting data in
such a way that the information becomes easier to interpret and is more meaningful
and useful to those relying on the information in the reports.
In chapter one of Double Profit, we considered the QUALITATIVE CHARACTERISTICS OF
ACCOUNTING REPORTS. These characteristics — relevance, reliability, comparability and
understandability all work to improve the quality of the information provided in the reports so
stakeholders are in a better position to assess the performance of a business. Effective
classification of accounting information is, of course, consistent with achieving the qualitative
characteristics of the reports.
Classification of the Profit/Loss Statement
Legal Supplies:
Profit/Loss Statement, June, 2009
Revenue