001 - Balance Sheet
Current Assets
"Resources held for the short term" For sale/ consumption, sold within a year, held for trading, cash or near cash (stock market) CASH AND CASH EQUIVALENT: MOST LIQUID INVENTORY (Stock): Products held by a business for trading purpose TRADE RECEIVABLES: Amount outstanding from customer who bought on credit--> (Customer gets TV and pays is 30 days later)
Non-current liability:
"amounts due for settlement in long term" Can transform into current liabilities (when repayment is due within one year) LONG-TERM BANK LOAN: funds received which are due for repayment in more than 1 year
Current Liability
"obligation to fulfil within a year (short)" TRADE PAYABLES (Trade Creditors): Amount owed to a supplier from whom goods/services were received on credit BANK OVERDRAFT: A form of short-term bank borrowing repayable on demand
Non-current assets
(fixed assets) "Resources held for long-term (> 1 year) operations" --> LEAST LIQUID TANGIBLE (physically exists) or INTANGIBLE (cannot be touched: patent, copyright) Normally consists of property, plant and equipment EXAMPLES: Land and buildings, Furniture, Motor vehicles, Computer equipment, Reference books, Machinery
1. Cash 2. Long-term bank loan 3. Buildings 4. Trade payables 5. Money by owner 6. Bank overdraft 7. Inventory 8. Money on bank account 9. Trade receivables 10. Motor vehicles
1. Cash = Current assets 2. Long-term bank loan = non-current liability 3. Buildings = non-current assets 4. Trade payables = current liability 5. Money by owner = Equity 6. Bank overdraft = current liability 7. Inventory = current assets 8. Money on bank account = current assets 9. Trade receivables = current assets 10. Motor vehicles = non-current assets
Balance sheet: 1. Assets 2. Liability 3. Equity
1. Resources held by company; everything a company owns 2. Obligations due for settlement (what a company has to pay to someone else) 3. Owner's claim against business (owners put money in business) A = L + E
The 3 major financial statements 1. Balance Sheet (Statement of Financial Position) 2. Income Statement (Profit and Loss Account) 3. Cash-flow Statement
1. What's the accumulated wealth of a business? (at certain point) 2. How much wealth was generated? (in period of time) 3. What cash movements took place? (what did company pay/ get in cash?)
Equity
= Owner's equity; Owner's capital Funds (e.g. cash) belonging to owner of business --> This is claim of owner against business Separate from owner in accounting business --> Funds from owner seen as external to business Owner's Equity is affected e.g. by profit/loss
Balance sheet layout - order of assets
Within assets section the items are listed in reverse order of liquidity (nearness to cash) Assets furthest from cash first = non-current assets Assets closest to cash last = current assets
Checklist of needed characteristics - Assets
· Is there a probable future economic benefit? · Does the benefit arise from a past transaction or event? · Is there a right to control the resource? · Can the resource be reliably measured in financial terms?
