Accounting Business Reporting for Decision Making

CHAPTER 6 Statement of profit or loss and statement of changes in equity 245

VALUE TO BUSINESS

•   The statement of profit or loss presents the profit or loss made by the entity during the reporting

period. The statement of comprehensive income reports the profit or loss and other comprehensive

income. The statement of changes in equity explains the changes in equity from the start to the end

of the reporting period. The balance sheet shows the financial position of the entity as at the end of

the reporting period.

•   The profit or loss for the reporting period is added to the retained earnings as at the start of the

period.

•   The entity can make distributions from retained earnings (i.e. dividends or drawings) and transfers to

or from retained earnings.

•   The balance of the retained earnings as at the end of the reporting period is included as an equity

item in the balance sheet.