Lecture 4: The Balance Sheet - Liabilities and Equity Flashcards
Trade and other payables
Liabilitiy to pay for goods/services that we have receives and have formally agreed to pay for with the supplier
Accrued expenses
Liability to pay for an expense that has been consumed
Unearned revenue
Liability to dispatch goods/services when a payment has already been received
Borrowings
Liability arising from borrowing cash
Overdraft
A negative bank balance which needs to be repaid to the bank
Commercial bills
Short-term loan from a party
Provisions
Liabilities of uncertain timing and/or amount but thaat still meet the recognition criteria (reliable measurement and is a propbable obligation)
Contingent Liabilites
Liabilities that have so much uncertainty regarding their amount and timing that they don’t meet the recognition criteria and aren’t reported
Share capital
Equity contributed by shareholders in exchange for shares
Reserves
Equity accumulated by the ecntity held for a specific purpose
Retained earnings
A type of reserve for future dividend distributions
What does the WACC do?
Weighs up the different portion of debt and equity funding, including required rates of return in order to determine the necessary return on inventment to satisfy needs of both debt providsers and shareholder
What is our biggest risk when reporting liabilities?
To understand the carrying value of liabilities - estimations, judgement and choices must all be done in order to present reports in the most faithful representative manner.
What are the two criteria to recognising liabilities?
- The liability is probable to provide economic outflow
- The liability can be reliably measured
What is the financial decision?
The idea that short-term assets should be funded by short-term finance and long-term assets should be funded by non-current liabilities or equity.
