1.1 - Financial Position Flashcards
Creditor
a person or buisness that has extended credit or loaned money to another individual or buisness
a.k.a. Accounts Payable
a person or buisness that has extended credit or loaned money to another individual or buisness
Creditor
Financial Position
financial status of a person/company represented by their assets, liabilities, and networth or personal equity
* calculated using: A - L = OE
Personal Equity
= Personal Net Worth
* difference b/w the value of items owned and the debts owed (own - owed)
Assets
items which a person/buisness owns that have value
Liabilities
debts or amounts which a person/buisness owes (to creditors)
Balance Sheet Equation
a.k.a. Accounting Equation
A = L + OE
Purpose of Accounting
- to record financial activities of the buisness
- to provide financial information to make decisions
Buisness Entity Principle
different buisnesses are considered sepearate buisness and therefore have separate financial data from owner’s personal fiancial data
Balance Sheet
a financial statement which lists the assets, liabilities, and owner’s equity at a specific date
Owner’s Equity
owner’s claim against the assets of the company after payment of all liabilities
i.e. leftover after liabilities are paid off
Accounts Recievable
total amounts due from debtors (eg. customers)
usually within 30 days
Accounts Payable
total amount owed to creditors for purchase of goods or services by the buisness
(i.e they help you pay for stuff and this is the account that keeps track of how much you need to pay back)
Equities
claims by both the creditors and owners against the assets of a company
* R.H.S. of the balance sheet
Liquidity Order
ranking of how likely current assets will be converted to cash
* listed from most likely (top) –> least likely (bottom)
Two Types of Assets
- short lasting
- listed first in liquidity order - long lasting
- listed second in order of usefulness: longer lasting (top)
Typical Order of Assets
- Cash
- Marketable Security (eg. stocks)
- Accounts Recievable
- Office Supplies (?)
- Land
- Building
- Other…
Typical Order of Liabilities
- Accounts Payable (30-60 days)
- Loans (1-5 years)
- Mortgage Payable (25-30 years)
Maturity Date
payment due date of liabilities
Cost Principle
states that value of assets shown on balance sheet are either the acquicision cost or construction cost (cost of buying it or cost to build it?)
Bookkeeping
preparing and recording information in accounting records
Accounting
controlling, analyzing, and interpreting the financial information in the accounting system
Notes on Balance Sheet
- ensure L.S. = R.S.
- subtotal, addition/subtraction = single line
- grandtotal = double line
- $ is placed at first figure in column AND grand total
- no abbrevitions (unless official company name has)
What does a Statement Heading include?
Who - name
What - type of financial statement
When - “As at “ + date
