Section 2 Flashcards
What is the purpose of the balance sheet?
A statement of a company’s financial position at a particular point in time. It shows the value and categories of assets controlled by the company and the claims against those assets (for liabilities)
effectively a list of the companies resources and how they have been financed
What is included in non-current assets?
Tangible and intangible assets
Intangible are nonphysical such as patents or trademarks
Tangible are physical assets that are held for use in the production of supply of goods and services that will be used for more than one accounting period. E.g. plant and equipment, property and vehicles and cash.
What is a liability
claims on a company’s assets
Where can finance / liabilities for a business come from?
- Owners or shareholders, who take a share in any profits made
- Retained earnings (past profits and gains not paid out to shareholders by retained to enable the business to expand)
- Loan stock or debenture holders, who are typically paid a fixed rate of interest on their loan
- Long terms bank loans
- Current liabilities - trade payables or bank overdrafts
What two categories do the claims on a company’s assets fall into?
1) claims due to the shareholders
2) claims due to others leders
What comprises the shareholders claim?
subscribed capital and any retained earnings
general term is shareholders funds and these claims are generally only paid out when the company ceases trading/
What can claims or debts be further classified into?
Current and non-current liabilities
Define and give e.g.’s of current liabilities
Debts due for repayment within one year
Such as trade payables and bank overdrafts
Define and give e.g’s of non-current liabilities
Other debts over a year
Loan stock, debentures or bank loans (other than overdrafts)
what is important to remember about a balance sheet?
summary of current position so will quickly be outdated
what expenditure is and isn’t listed on the balance sheet and where else would this be listed?
Capitalised expenditure is recorded on the balance sheet
Other expenditure is recorded on the income statement
What is capital expenditure?
Money spent to create future benefits
Creates or improves an asset
What is revenue expenditure?
Money spend that reduces profits. covers costs that are not related to the direct production of goods or services.
Includes the costs of keeping assets maintained in good operating condition however this must not improve its useful life/ increase the value of the asset.
E.g. office supplies, maintenance, bills
What is a non-current asset?
mainly tangible assets with a long life, which are held to provide the infrastructure of the company.
Under IFRS these are referred to as plant, property and equipment
What do both IFRS and UK accounting standards require non-current assets to be recorded at?
Recorded at cost and subsequently carried forward using either the cost model or the revaluation model.
The model used must be applied to the whole class of assets.
