Business Reporting and Financial Accounting - Balance Sheet

Flashcards based on lecture notes for Accfin1001 Unit 2: Production of balance sheet.

Balance Sheet

Also known as statement of financial position, it reports a company’s assets, liabilities, and owners’ equity at a point in time.

Income Statement

Also known as statement of financial performance or profit and loss statement. It reports a company’s revenues, expenses, and net income or net loss for a period of time.

Cash Flow Statement

Reports a company’s cash inflows and outflows from operating, investing, and financing activities over a period of time.

Information on the Balance Sheet

Conveys information on financial position at the accounting reference date and helps in making decisions about an organisation’s financial health.

Asset

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

Current Assets

Short-term assets expected to be realized within a normal operating cycle (12 months).

Non-Current Assets (Fixed Assets)

Assets purchased not for resale, held for long-term use (more than 12 months) to produce goods and services.

Tangible Assets

Assets with a physical/material substance.

Intangible Assets

Assets with no physical/material substance but provide expected future benefits.

Liability

Present obligation of an entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.

Current Liabilities

Liabilities expected to be settled in the entity’s normal operating cycle (12-month period).

Non-Current Liabilities (Long-Term Liabilities)

Amount due to be repaid in more than one year.

Equity

The residual interest in the assets of the entity after deducting all its liabilities.

Net Assets

Total assets less total liabilities.

Transaction

Any event that affects the financial position of the business entity and can be measured reliably.

Business Entity Convention

For accounting purposes, the business and its owner(s) are treated as being quite separate and distinct.

Historical Cost Convention

The amount paid for an asset on the transaction date; assets on the balance sheet should be based on this.

Prudence (Conservatism) Convention

Caution should be exercised when making accounting judgments under conditions of uncertainty.

Going Concern Convention

The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future.

Monetary Measurement

Resources are regarded as assets and included in the balance sheet only if they can be measured in monetary terms.