MODULE 4 PART 4: The Financial Aspect (Elements of Financial Statement) Flashcards
(5) Elements of Financial Statement:
- Assets
- Liabilities
- Equity
- Revenue
- Expenses
Resources owned or controlled by an individual, company or organization.
- Assets
(2) Types of Assets:
- Current Assets
- Non-current Assets (Fixed Assets)
These assets can be converted to cash within one business operation year.
- Current Assets
Current Assets Examples:
- Cash - physical money in the form of coins and banknotes
- Accounts Receivable - unpaid amount for products or services a company delivers to its customers
- Inventory - stock of goods or materials a company holds
- Prepaid Expense - expenses that are paid in advance
These assets are non-current resources that a company uses to produce goods and services that have a life of more than (1) year. It is recored on the balance sheet as property, plant, and equipment.
- Non-current assets (Fixed Assets)
(2) Types of Non-current Assets:
- Tangible Fixed Assets - trucks, office furniture, machinery, buildings, and land.
- Intangible Fixed Assets - goodwill, patents, copyrights, trademarks and franchises.
These are obligations that the law requires to be paid.
- Liabilities
(2) Types of Liabilities:
- Current Liabilities (Short-term Liabilities)
- Non-current Liabilities (Long-term Liabilities)
These are the debts that the business has to pay back within the next 12 months.
- Current Liabilities
Examples of Current Liabilities:
- Accounts payable - unpaid amounts of products or services of the business
- Salaries and Wages - compensations paid to workers for their work or services
- Notes payable - written promissory note for the debt a company owes to another business
- Mortgage payable - amount of money owed by the company for a property loan
These debts are not due for more than 12 months.
- Non-current liabilities
Examples of Non-current Liabilities:
- Customer Deposits - amounts received from customers in advance for goods not yet provided
- Lease Obligations - long-term agreements with periodic payments
- Pension Liabilities - obligations arising from employee retirement plans
- Long-term Debt - Loans and borrowings with more than (1) year of maturity.
- Warranty Liabilities - Obligations to repiar or replace products with defects or issues within a specified period after the sale.
Sum invested in a company by its owners in addition to any earnings that are still retained.
- Equity
(4) Examples of Equity:
- Owner’s Capital - Amount of money or assets the owner has contributed to the business
- Owner’s Withdrawals - Money withdrawn by business owners for personal expenses or investments
- Common Stocks - Represents ownership in a company
- Retained Earnings - portion of a company’s net income that is retained and reinvested in the business.
Measurement of a company’s total gross activity.
- Revenue
(2) Types of Revenue:
- Operating Revenue (sales, rental income, professional services, commission earned)
- Non-operating Revenue (dividends, investment income, gains or losses from foreign exchange, sales of assets)
When an asset loses value because it is used to make money.
- Expenses
(2) Categories of Expenses:
- Operating Expense (cost of sales, utilities expense, purchases, freight expense, advertising expense, interest expense, depreciation expense, rent expense, supplies expense, license fees and taxes)
- Discretionary Expense (company travel, invesetments and innovations, employee perks, office improvements, employee training)
Formula for Assets:
Assets = Liabilities + Owner’s Equity
