Exam (elaborations)
Fundamentals of Finacial Reporting BMAN10621 Revision
- Course
- Institution
Fundamentals of Finacial Reporting BMAN10621
[Show more]
Seller
Followlaurapowell
Content preview
Fundamentals of Financial ReportingBalance Sheet
The accounting equation
1. Where the entity gets the money from
Two types of claims:
i) equity
ii) debt
2. How does the entity spend the money
Accounting (or balance sheet) equation:
Assets = liabilities + share capital (or equity)
Statement of fi nancial position
Shows the financial position of a business at a point in time – a
snapshot of the business
Shows information about the assets, liabilities and resulting
owners’ interest (also known as equity or capital) in the
business; more on these later…
Governed by the accounting equation:
ASSETS = CLAIMS (i.e. Equity + Liabilities)
Assets:
Inventory = value of goods purchased by the business for trading
purposes
Trade Receivables = money owed to the business by its clients,
arising from past sales made to clients on credit
Cash = money in the bank and/or in the cash register
Prepaid expenses = money paid in advance by the business for
expenses it will incur in the future (e.g. money paid for next year’s
rent or next year’s insurance)
Liabilities:
Borrowings (loans) = money the business owes to banks or other
third parties arising from cash borrowings
Trade Payables= money that the business owes to its suppliers,
arising from past purchases of inventory made on credit
Accrued Expenses = money the business owes because of unpaid
expenses it has incurred during the current accounting period.
Cash Overdraft (negative cash balance) = this is a short-term
loan from the bank to the business; when cash is negative it needs
to be recorded as a liability, instead of an asset
Equity:
, Original Capital = represents the original contribution of the
owner to the business (for plcs you will see “Share Capital”)
– NOTE that his contribution could be anything that can be
valued in monetary terms, e.g. cash, a PC, a van etc.
Retained Profit = represents the accumulated profits or losses
throughout the years since the business started trading.
– The Retained Profit is the profit that the business retains (i.e.
keeps), in order to help it grow and prosper (it is a good
source of financing for funding future growth)
– If the owner withdraws money from the business, retained
profits will decrease.
Classifi cation of Assets and Liabilities as Current vs. Non-Current
Current Assets:
Assets held for the short term (usually less than 1 year)
Assets meeting ANY of the following characteristics:
– Held principally for trading
– Held for sale/consumption in normal operating cycle
– Expected to be sold within the next year
– Cash or near cash
Non-Current Assets:
Assets that are held for the long term (longer than 1 year) and DO
NOT meet the definition of a current asset.
Current Liabilities:
Amounts owed that are to be paid in the short term (usually within 1
year)
Liabilities meeting ANY of the following criteria:
– Held principally for trading purposes
– Expected to be paid during the normal operating cycle
– Expected to be paid within the next year
– No right to defer payment beyond 1 year
Non-Current Liabilities:
Liabilities that are expected to be paid after 1 year and DO NOT
meet the definition of a current liability.
NOTE: Non-current liabilities will eventually be re-classified as
current liabilities.
Simple Balance Sheet Layout / Order of Presentation
NON-CURRENT ASSETS
……
CURRENT ASSETS
…...
TOTAL ASSETS XX
EQUITY
……
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller laurapowell. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.55. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
75323 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now