FABM2 - Statement of Financial Position (SFP) Flashcards

Vocabularies based on FABM2 lecture notes covering elements of the Statement of Financial Position, classifications of accounts, and recording formats.

Statement of Financial Position (SFP)

Also known as the balance sheet, it includes total assets, liabilities, and owner’s equity, providing the financial condition of a company on a specific date.

Financial Statements

Structured representations of the financial position and performance of an entity designed to provide information useful for economic decisions.

Accounting Equation

The core formula of accounting: $Assets = Liabilities + Equity$.

Permanent Accounts

Accounts found in the SFP (assets, liabilities, and equity) whose balances remain intact and are carried over from one accounting period to another.

Temporary Accounts

Accounts found in the Statement of Comprehensive Income (SCI) that have zero balances at the end of each accounting period.

Contra-assets accounts

Accounts presented under assets that represent reductions to the company’s assets, such as Allowance for Doubtful Accounts and Accumulated Depreciation.

Allowance for Doubtful Accounts

A contra-asset account to Accounts Receivable representing the estimated amount that may not be collected from delinquent customers.

Accumulated Depreciation

A contra-asset account to Property, Plant and Equipment representing the total amount of depreciation booked against fixed assets.

Assets

Resources controlled by an entity as a result of past events from which future economic benefits are expected to flow to the entity.

Current Assets

Assets expected to be converted to cash, sold, or consumed during the next 12 months or within the normal operating cycle if it is longer than one year.

Normal Operating Cycle

The period it takes for an entity to buy its inventories, sell them, and collect the related receivables.

Cash

Includes bills and coins on hand, bank accounts, and operating funds like petty cash funds.

Cash Equivalent

A short-term, highly liquid investment readily convertible to known amounts of cash with insignificant risk of value changes.

Trade Accounts Receivable

The amount owed by customers for goods bought or for services received from the entity.

Notes Receivable

An asset evidenced by a written promise that entitles the holder to receive cash in the future.

Interest Receivable

The collectible amount due to the cost of borrowing money.

Financial Assets at Fair Value through Profit or Loss (FAFVPL)

Conventionally called trading security, it is a debt or equity instrument of another entity held for trading.

Finished Goods

Goods intended for sale in the normal course of business.

Work in progress

Also called goods in process, these include goods that are currently in the process of production.

Raw materials

Materials and supplies to be consumed in the production process.

Property, Plant and Equipment (PPE)

Long-lived fixed assets used in the normal operating cycle or production, such as land, buildings, and machinery, which depreciate over time (except land).

Intangible Assets

Assets without physical substance, such as trademarks, patents, and copyrights.

Investment Properties

Long-lived assets intended to be leased out or held for long-term asset appreciation rather than used in production.

Biological Assets

Living plants or animals held by the business for resale or breeding, such as dairy cattle or fruit trees.

Liabilities

Present obligations arising from past events, the settlement of which results in an outflow of resources embodying economic benefits.

Current Liabilities

Debts that are due to be paid within one year or within the entity’s operating cycle if the cycle is longer than a year.

Trade Accounts Payable

An unwritten promise to pay a supplier for an asset purchased or for a service rendered.

Notes Payable

A formal written promise to pay a supplier or lender a specific sum of money at a definite future time.

Interest Payable

Expenses related to a note payable calculated as: $\text{Principal} \times \text{Time Factor} \times \text{Interest Rate}$.

Accrued Expense

An expense that has been incurred but not yet paid in cash, such as salaries, rent, and utilities.

Income Tax Payable

Taxes due to the government within one year based on prevailing tax laws.

Non-current Liabilities

Also known as long-term liabilities, these are financial obligations expected to be paid after one year.

Bonds Payable

A form of long-term debt issued by corporations or governments with a formal agreement to pay interest periodically and the principal at maturity.

Equity

The residual interest of the owner in the business, calculated as $Assets - Liabilities$. Also referred to as net assets or net worth.

Account Form

A format of the SFP where assets are listed on the left side, and liabilities and owner’s equity are listed on the right side.

Report Form

A format of the SFP where assets, liabilities, and owner’s equity are presented in a single vertical direction (assets first, followed by liabilities and equity).