Lecture 3 Statement of Financial Position
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50 Terms
Statement of Financial Position
A financial statement that shows assets, liabilities and equity at a specific date.
Purpose of Statement of Financial Position
To show what a business owns, owes and the owner's interest.
Another Name For Statement of Financial Position
Balance Sheet.
Statement of Financial Position Reports
Financial position at a specific date.
Income Statement Reports
Performance over a period of time.
Accounting Equation
Assets = Liabilities + Equity.
Expanded Accounting Equation
Assets = Liabilities + Capital + Revenue
Assets
Resources owned or controlled by the business that provide future economic benefits.
Asset Examples
Cash, inventory, trade receivables, equipment and furniture.
Liabilities
Amounts owed by the business to outsiders.
Liability Examples
Accounts payable, bank loan, wages payable and utilities payable.
Equity
Owner's residual interest after deducting liabilities from assets.
Equity Formula
Equity = Assets
Examples of Equity
Capital, retained earnings and profit.
Current Assets
Assets expected to be used, sold or converted into cash within 12 months.
Current Asset Examples
Cash, inventory and trade receivables.
Non
Current Assets
Non
Current Asset Examples
Current Liabilities
Obligations due within 12 months.
Current Liability Examples
Accounts payable, wages payable and accrued expenses.
Non
Current Liabilities
Non
Current Liability Examples
Statement of Financial Position Heading Contains
Business Name, Statement of Financial Position and Date.
Statement of Financial Position Date Format
As at 31 December 20X5.
Difference Between Income Statement And Statement of Financial Position
Income Statement shows performance over time while Statement of Financial Position shows financial position at a specific date.
Profit Effect On Equity
Profit increases equity.
Loss Effect On Equity
Loss decreases equity.
Revenue Effect On Equity
Revenue increases equity.
Expense Effect On Equity
Expenses decrease equity.
Capital Effect On Equity
Capital increases equity.
Drawings Effect On Equity
Drawings decrease equity.
Capital
Amount invested by the owner in the business.
Drawings
Amount withdrawn by the owner for personal use.
Effect of Drawings
Reduces equity.
Trade Receivables
Amounts owed by customers to the business.
Trade Payables
Amounts owed by the business to suppliers.
Resources Controlled By The Business
Assets.
Obligations Owed To Outsiders
Liabilities.
Owner's Residual Interest
Equity.
Why Prepare Statement of Financial Position
To assess financial health and financial position.
Owners Use Statement of Financial Position For
Evaluating business value and financial strength.
Banks Use Statement of Financial Position For
Assessing ability to repay loans.
Suppliers Use Statement of Financial Position For
Deciding whether to provide credit.
Current Assets Formula
Cash + Inventory + Trade Receivables + Other Current Assets.
Net Assets Formula
Total Assets
Working Capital Formula
Current Assets
If Assets Increase And Liabilities Stay The Same
Equity increases.
If Liabilities Increase And Assets Stay The Same
Equity decreases.
Five Elements Of Accounting
Assets, Liabilities, Equity, Revenue and Expenses.
Financial Position
The relationship between assets, liabilities and equity at a point in time.