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Balance Sheet Part 2 Notes

Accounting Notes > Accounting (Special Edition) Notes

This is an extract of our Balance Sheet Part 2 document, which we sell as part of our Accounting (Special Edition) Notes collection written by the top tier of Acca students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Accounting (Special Edition) Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

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:
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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:

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Notes payables Long-term debts Deferred income tax liability - this is explained in another lesson

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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 capital
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X Bal b/d Equity shares issued X Revaluation surplus Net profit Dividends
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Share premium
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X Revaluation reserve
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X Accumulated profits
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Total

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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.

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