Balance Sheet (chapter 2) Flashcards
Financial position
the status of a business based on its assets, liabilities, and owner’s equity
Asset
everything the business owns that has a dollar value
(Cash, accounts receivable, supplies, land, building, vehicles, equipment, furniture)
Liabilities
debts (Accounts payable, bank loans, mortgage payable)
listed in the order in which they are normally paid
Equity, owner’s equity, net worth,
The difference between total assets and total liabilities (OE = A - L)
The fundamental accounting equation
Assets = Liabilities + Owner’s Equity
Balance sheet
a statement showing the financial position of a person, business, or other organization
Liquidity
-the order in which the assets could be most quickly converted into cash
-order in which assets are listed on a balance sheet
Accounts receivable
amounts owed TO the business by its customers, an asset
Debtor
anyone who owes money to the business
Accounts payable
debts owed BY the business
liability
Creditor
anyone to whom the business owes money
Claims against the assets
The creditors get first claim of the assets and the owner(s) get whatever is leftover
Because they have either provided the funds used to acquire the assets, or they have provided the assets themselves
CICA
historically the Canadian Institute of Chartered Accountants has established the standards for Canadian accountants. available in the CICA handbook
Canadian GAAP
Canadian Generally Accepted Accounting Principles
contributed heavily to the CICA handbook
AcSB
Accounting Standards Board
Governing body to oversee Canadian accounting practice
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standards
Replaced the Canadian GAAP in 2006
Set by the IASB
For public companies, listed on stock exchanges
ASPE
Accounting Standards for Private Enterprises
A separate set of guidelines, created by AcSB, to help private businesses because they are not listed on stock exchanges
Business Entity concept
a long-standing principle that keeps the accounting for a business organization separate from the personal affairs of its owner, or from any other business or organization
Cost Principle
requires accountants to record the value of assets at their historical cost price
Continuing concern concept
assumes that a business will continue to operate unless it is known that it will not. This assumption frees the reader of a balance sheet from worrying about the market values of assets and whether debts will have to be paid before they are due
The Revaluation Model
IFRS allows for modifications to the cost principle
RM outlines an accounting procedure that allows accountants to change the value of particular assets based on market conditions
Current Assets
Cash and assets that will be converted into cash within one year (A/C and supplies)
Long-term assets
items link land, buildings, and equipment. These assets last longer than one year
Current Liabilities
these that are due within a year, such as A/P
Long-term liabilities
take more than a year to pay off, ex. mortgage payable
