5.3 How is a classified Statement of Financial Position prepared from the Trial Balance? Flashcards
Will stakeholders find a simplified Statement of Financial Position useful for their decision-making purposes?
No. This is because the items on the simplified Statement of Financial Position are not further classified to provide more information about them.
What is a classified Statement of Financial Position?
A classified Statement of Financial Positionfurther groups assets and liabilities as: 1. Non-Current Assets 2. Current Assets 3. Non-Current Liabilities 4. Current Liabilities
How are assets grouped / classified?
Assets are grouped / classified according to how easily they can be converted to cash, are expected to be sold or whether they are used up later or sooner. They are classified as non-current (long term) assets or current (short term) assets.
What are non-current assets?
Non-current assets are obtained by businesses to help generate income. Compared to current assets, non-current assets are less easily converted to cash. A business does not buy non-current assets with the intention to sell them as goods. Non-current assets can be used for the long term, usually more than a year.
What are the characteristics of non-current assets?
- Obtained by businesses to help generate income. 2. Less easily converted to cash. 3. Are also known as Capital Expenditures (Chapter 13). 4. Are purchased for use by the business, not for resale. 5. Used for the long term, usually more than one year. 6. Found in the Balance Sheet.
Give some examples of non-current assets.
- Land 2. Property (comprises land and building) 3. Plant and equipment 4. Office Equipment 5. Fixtures and fittings 6. Motor Vehicles (Please refer to your notes / Memory and Mastery cards from Chapter 3).
What are current assets?
Current assets are easily converted to cash, and are expected to be sold or used up within one year.
or
Current assets are resources of a business that are easily converted into cash, sold or used, usually within the year.
Give some examples of current assets.
- Inventory 2. Trade receivables 3. Other receivables 4. Income receivables 5. Prepaid expenses 6. Cash at Bank 7. Cash in Hand 8. Petty Cash
How does the Assets section of a classified Balance Sheet look like?
Balance Sheet as at XXX $ $
Assets
Non-Current Assets
Land XXX
Property XXX
Plant and Equipment XXX
Office Equipment XXX
Fixtures and Fittings XXX
Motor Vehicles _ XXX_ XXX
Current Assets
Inventory XXX
Trade Receivables XXX
Other Receivables XXX
Income Receivables XXX
Prepaid Expenses XXX
Cash at Bank XXX
Cash in Hand XXX
Petty Cash XXX XXX
Total Assets XXX
How are liabilities classified?
Liabilities are classified according to whether they are to be settled later or sooner. They are classified as non-current (long term) liabilities and current (short term) liabilities.
What are non-current liabilities?
Non-current liabilities are amounts owed and are due for settlement beyong one year, from the date of the Balance Sheet.
What are current liabilities?
Current liabilities are amounts owed that must be settled within one year, from the date of the Balance Sheet.
Give some examples of non-current liabilities.
- Mortgage Loan
- Bank Loan
- Loan form other business or person
Note: On the Balance Sheet, the above are usually added up and shown as Long-term Borrowings.
- Debentures
Give some examples of current liabilities.
- Trade Payables
- Oher payables
- Bank overdraft (on the Balance Sheet, a bank overdraft is called a short term borrowing)
- Income received in advance
- Accrued expenses
- Current portion of long-term borrowing
How does the Equity Section of the Statement of Financial Positionlook like?
Equity and Liabilities
Owner’s Equity
Capital
(Beginning Capital + Additional Capital + Profit (or - Loss) - Drawings)
