End of Year Transactions

Welcome in the session. We will try to assess the company’s performance. We will try to see which revenues and which expenses build up the company profit and how we can deal with revenues expenses that extend over just one current period. Last week we saw our company work for less recording and combining the following transactions. In one statement form. But how can we say what the company performance was. What can we determine its profit. If work for less ended its operations within the current period. December 30 first we could easily estimate its performance but hopefully the company will continue its operations in the following years. But shareholders cannot wait until the company is dissolved.

Thus we need to estimate periodic income usually twelve months but in some cases it can be more often. This process requires determining which revenues and which expenses refer to the relevant period to assess the company’s performance. Let’s classify the transactions in the statement form into expenses in red and revenues in blue to determine the company’s performance for the current period. We own the net to pick revenues and expenses that do belong to the current period to this purpose. We rearrange revenues and expenses and we focus on revenues in blue first. If this was still one and only a year or the firm’s activity we could easily estimate the firm’s performance as revenues minus expenses.

But unfortunately for us this is not the case and work for less will continue its operations in the future. Our job here is to estimate the performance generated over one single period. For instance the performance in year one the performance in year two year three four and so on versus the global performance over the entire lifetime. Of the firm.