LECTURE 2 - ADM 1340

Statement of Financial Position

• Provides a snapshot of a company’s financial
  position at a particular point in time (e.g., at the end
  of the fiscal year).

  • Economic resources controlled by the company (assets)

  • Economic resources borrowed from creditors (liabilities)

  • Economic resources invested by shareholders
    (shareholders’ equity)

Economic resources controlled by the company

assets

Economic resources borrowed from creditors

(liabilities)

Economic resources invested by shareholders

shareholders’ equity

Accounting Equation:

Assets = Liabilities + Equity

Assets

Economic Resources Owned or Controlled

Liabilities

Economic Resources Borrowed

Equity

Economic Resources Contributed by Shareholders

Types of Assets

• Current Assets

• Non current assets

Types of Liabilities

• Current Liabilities

• Non current Liabilities

Types of Shareholder Equity

• Contributed Capital

• Retained Earnings etc.

CURRENT

• within one year

Current Assets

• Assets expected to be converted to cash, sold or used in the business within one year of the financial statement date or one operating cycle, whichever is longer

Current Assets quickest to liquidity

1. Cash

2. Short -term (trading) investments

3. Accounts Receivable

4. Merchandise Inventory

5. Prepaid expenses

   1. insurance

Operating cycle is

the average time when a business pays cash to obtain products or services and when it receives cash from customers for these products or services

liquidity

the order in which they expect current assets to be converted to cash, sold or used up

Reverse order of liquidity

1. Prepaid expenses

2. Merchandise Inventory

3. Accounts Receivable

4. Short -term (trading) investments

5. Cash

Non-Current Assets

• Also known as long-term assets

• All assets not considered current

Non-Current Assets Heiarchy

1. Long-term investments

2. Property, plant, and equipment

3. Intangible assets and goodwill

4. Other assets

Long-Term Investments