Business Accounting Balance sheets

Definitions

Current Asset

The economic resource will flow to the business within the next 12 months of the current reporting date.

Non Current Asset

The economic resource will flow to the business for a period longer than 12 months of the current reporting date.

1. Source Documents

Written evidence that a financial transaction has occurred and provides the original data used to record the transaction in the accounting system.

2. Recording

Process of sorting, classifying, and summarising financial information by posting data from source documents into journals and ledgers

3. Reporting

Taking information from the accounting records and preparing financial reports such as the Cash Flow Statement, Income Statement, and Balance Sheet

4. Advice

Accountants use financial reports to provide suggestions to business owners to support better decision-making and improve business performance.

Owners’ Equity

Residual interest in the assets of the business after deduction of its liabilities

Revenue

Increase in assets or a decrease in liabilities that leads to increase in OE

Expense

Decrease in assets or an increase in liabilities that results in a decrease in OE

Classification in the Balance Sheet

• Grouping together items that have some common characteristic:

• Assets are classified according to their liquidity (ability to be turned into cash)

• Liabilities are classified on the basis of their urgency of repayment

Non-Current Liabilities

Present obligation of the business arising from past events, leading to a transfer of economic benefits for a period longer than 12 months of the current reporting date.

Current Liabilities

Present obligation of the business arising from past events, leading to a transfer of economic benefits within the next 12 months of the current reporting date.