Accounting Notes Accounting (Special Edition) Notes
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2) Balance Sheet – Part 2
http://www.youtube.com/watch?feature=player_embedded&v=pDAOCiLzoVw
Definition
A balance sheet is a financial statement of an organisation which shows the financial position of the organisation on a particular date.
In other words
The balance sheet also known as statement of financial position shows the position of the business at one point in time.
The top half of the balance sheet shows the assets of the business and the bottom half of the balance sheet shows the capital and liabilities of the business.
Why is it important?
It is a very important financial statement for the stakeholders (investors, managers, banks etc.) of the business, they want to know the financial position of the business, balance sheet provides all relevant information to the users so that they will take their future decisions accordingly.
Lecture Notes
In the earlier lesson, the asset side of balance sheet was explained, in this part we will look at the liabilities, equities and others in detail.
Liabilities
Liabilities have the same classifications as assets: current and noncurrent.
Current liabilities - Obligations that is to be paid within one year. such as:
Trade Creditors / Accounts payable - This amount is owed to suppliers for goods and services that are delivered but not paid for.
Salaries payable, rent, tax and utilities - This amount is payable to employees, landlords, government and others.
Accrued liabilities (accrued expenses)
Notes payable (short-term loans) - This is an amount that the company owes to a creditor, and it usually carries an interest expense.
Unearned income- These are payments received by customers for products and services the company has not delivered.
Dividends payable
Bank overdraft
Noncurrent Liabilities - These are obligations that are reasonably expected to be liquidated at some date beyond one year .Usually included are:
Notes payables
Long-term debts
Deferred income tax liability - this is explained in another lesson
Pension fund liability
Long-term lease obligation
Components of Shareholder's Equity
Also known as "equity" and "net assets", the shareholders' equity refers to their ownership interest in a company.
Equity includes:
Ordinary Share Capital - This is the investment by shareholders, and it is valued at par.
Preference share capital - This is the investment by preferred shareholders, they have priority over any distribution made to ordinary shareholders. This is usually recorded at par value.
Retained Profits - This is the accumulated net income (or loss) less dividend since the company's started.
To show periodical changes in shareholders equity, companies prepare a Statement of changes in equity.
Statement of changes in equity
The statement of changes in equity provides a summary of all changes in equity arising from transactions with owners in their capacity as owners.
This includes the effect of share issues and dividends.
QB Group
Statement of changes in equity for the year ended 31 December 20X2
Share Share Revaluation Accumulated Total
capital premium reserve profits
$ $ $ $ $
Bal b/d X X X X X
Equity shares
issued X X X
Revaluation
surplus X X
Net profit X X
Dividends (X) (X)
—— —— —— —— ——
X X X X X
—— —— —— —— ——
Financial instruments
According to International accounting standards A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
IAS 32 is the sole guideline for accountants to deal with Financial instruments, the following subject matter is provided by IAS to recognise financial instruments in the financial statements.
A financial asset is any asset that is:
cash
an equity instrument of another entity
a contractual right to receive cash or another financial asset from another entity
a contractual right to exchange financial instruments with another entity under conditions that are potentially favourable
a contract that will or may be settled in the entity’s own equity instruments and is a non derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments
a contract that will or may be settled in the entity’s own equity instruments and is a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial assets for a fixed number of the entity’s own equity instruments.
A financial liability is any liability that is a contractual obligation:
to deliver cash or another financial asset to another entity
to exchange financial instruments with another entity under conditions that are potentially unfavourable
a contract that will or may be settled in the entity’s own equity instruments and is a non derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments
a contract that will or may be settled in the entity’s own equity instruments and is a derivative that will be may be settled other than by exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments.
Some financial instruments are reported on the balance sheet at fair value (marking to market), while others are reported at present value or...
Buy the full version of these notes or essay plans and more in our Accounting (Special Edition) Notes.
These notes are specially designed to meet the requirements of the accounting and financial reporting students internationally. These notes are equally relevant for all the regions of the world.
There are many easy and unique features included in the notes to understand and grasp the topic.
Further There are free video links to better understand the topic by the expert tutor.
There are many practice questions to understand how the concept is applied into practical scenarios.
These not...
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