Lecture 2 - Statement of Financial Position and Statement of Financial Performance Flashcards
What is the accounting equation
assets= equity + liabilities
Effect of trading transaction on accounting equation
assets= equity +(-) profit (loss) + liabilities
Recording trading transaction
assets + expenses = equity + revenue + liabilities
What does the statement of financial position list
current/ non current assets and current/ non current liabilities
What is a current asset
An asset held for sale or consumption during the business’s operating cycle. it is expected to be sold within a year
What are the three main current assets
cash, inventories and trade recievables
What is a non current asset
a fixed asset held within the business for a long period of time
What are the seven main non current assets
- plant
- property
- fixture and fittings
- equipment
- machinery
- motor vehicles
- intangible assets
What is a claim
an obligation of a business to provide cash, or another benefit, to an outside party
What are the two types of claim
equity and liabilities
What is a current liability
a liability expected to be settled within business’s normal operating cycle, within a year of the financial position date
What is a non current liability
Does not meet definition of current liabilities and a long term obligation (bank loan)
What is the standard layout of the accounting equation
NCA + CA = Equity + NCL + CL
What is the non standard layout of the accounting equation
NCA + CA - CL - NCL = Equity
Three types of intangible asset
- Goodwill and Brands
- Human Resources
- Monetary Stability
What are the uses of the statement of financial position
- show ho the business is financed and how funds are deployed
- provide basis for assessing the value of the business
- assess relationship between assets and claims
-assess performance
Equation for profit (or loss) for the period
profit (or loss) for the period = total revenue for the period - expenses incurred
What is the layout of the income statement (8 steps)
- sales revenue
- cost of sales
- gross profit
- operating expenses
- operating profit
- interest payable
- interest received
- profit for the period
What are the two uses if the income statement
- how effective the business has been in generating wealth
- how the profit was derived
What are the five accounting conventions
- business entity convention
- historic cost convention
- prudence convention
- going concern convention
- dual aspect convention
