Accounting

Accounting

1. Balance Sheet (Statement of Financial Information)

   • Info for Internal & External Users
     • Evaluate business's ability (Profit & remaining Solvent)
   • Reports Financial Position of Company incl. assets, liabilities, & shareholders' equity at specific point in time
   • Balance Sheet Equation (AKA, Acc Eq): A = L + OE
     • Relationship between assets of business & how they are financed
       • Assets Financed - Borrowing from Creditors (Debts AKA. Liabilities) or issuing shares to owners (Equity)
       • Both owners & creditors have claims against assets, in company - owner's claims = Shareholder's Equity
     • Assets = Economic Resources & Liabilities & Owner's Equity = Claims on Economic Resources
       • Owner's Equity - Represent Owner's Current Investment in Assets of Business
         • Equity represents share of assets claimed by owners
           • 2 Primary Sources of Equity - Contributed Capital & Retained Earnings
             • Sole Trades, these 2 sources are in one account called "capital" but companies kept separate
           • Often called Residual - what's left over
             • A - L = OE
             • Creditors have priority (legally) over owners
             • If Assets & liabilities are measured according to GAAP, than dollar value of Equity must be measured properly
     • Assets - Resources of company
       • Requirements to appear on BS: Past Event, Resource controlled by company, provide future economic benefits, reliably measured - Verifiable (E.g. Source Doc)
         • Not all resources are shown in BS
       • CA - Cash &other assets that business expects to convert into cash, sell, or use up within 1 year of balance sheet date.
         • Helps asses liquidity also listed in in order of liquidity
           • On BS date, asset may not be shown greater than exp eco benefit measured of date
             • Acc rec.Debtors - Shown at recoverable amount
             • Inventory (Stock) - good held or resale, shown at lower of cost or net realisable value (whichever is lower)
               • Prepayment - Expense prepaid (CL)
       • NCA - Use it longer than 12 months
         • PP&E (Fixed Assets) - tangible productive assets used in operations e.g.. land, buildings, equipment
         • Intangible Assets - lack physical Substance e.g.. patents, trademarks, copy rights
         • Long - Term Investments - Not used in operations, expected benefits usually from rent or sale. E.g. Land, Buildings, & shares in other companies
       • Assets can have a Negative Balance
         • BankOverdrafts (Liability) - Negative cash balance
         • Asset Contra Accounts - e.g. accumulated depreciation & Allowance for Doubtful Debts
           • ACA means creating a "negative' asset account instead of reducing a particular asset directly
           • BS and footnote disclosures
     • Liabilities - Obligations of Company
       • Requirements: Past Event, Cause an outflow of Resources, Reliably Measured
       • Current Liabilities - Obligations company expects to pay within on year
         • E.g. Accounts Payable, Short - term borrowings
       • Non - Current Liabilities (Long - Term Liabilities) Present Obligations that require payment beyond one year of the BS date
         • e.g. Notes Payable. Mortgage payable, Loan or Bonds payable
           • If due date is within on year of the BS date, the debt becomes current.