BUSS1030 Lecture Notes - Lecture 6: Contingent Liability, Accounts Payable, Accounts Receivable
17 May 2018
School
Department
Course
Professor
!
Nature and Purpose of Financial Position!
Purpose: To set out the financial position of a business at a particular point in time. !
AKA Balance Sheet!
- Contains assets, liabilities and equity position at a particular point in time!
Assets: AASB Framework Definition!
- Expected future economic benefit!
- Exclusive right to control the benefit!
- Benefit must arise from some past transaction or event!
- Asset must be capable of reliable measurement in monetary terms!
Examples!
- Cash!
- Freehold premises!
- Machinery and equipment!
- Fixtures and fittings !
- Patents and trademarks !
- Accounts receivable!
- Investments!
(assets can be tangible (physical substance) or intangible(e.g copyrights, trademarks, patents,
goodwill))!
"!
Claim Against the Assets!
- External claims: Liabilities!
#Provision: estimated liabilities where there is greater uncertainty regarding the amount or timing of
the amount than a normal liability!
#Contingent Liability: potential liability that might arise in the event of a particular event occurring!
#(not recognised until even actually occurs; but often disclosed in the annual report)!
- Internal claims: Owner’s equity/ Capital!
"!
Liabilities: AASB Framework Definition!
- Probability of occurrence !
- Reliability of measurement!
- Present obligation of entity arising from past events!
- Expected to result in an outflow from the entity of resources embodying economic benefits!
Examples!
- Accounts payable!
- Staff entitlements!
- Loans and other credit facilities!
- Warranty provisions and other social or moral obligations!
- Provision for employee bonuses or owner’s distributions!
"!
Owner’s Equity: AASB Framework Definition!
- Residual interest in the assets of the entity after deducting all its liabilities!
In the statement of financial position, 2 additional accounts!
· Owner’s equity retained: Represents profits left in the business by the owners!
· Reserves: Represents ‘ special purpose’ owners’ equity accounts e.g capital profits reserve
(represents ownership interests in the assets)!
"!
Accounting Equation!
Assets = Liabilities + Owners’ equity!
Assets = Owners’ equity beginning!
#+ Profit (or – loss)!
#+/- Other owners’ equity changes !
Document Summary
Provision: estimated liabilities where there is greater uncertainty regarding the amount or timing of. Contingent liability: potential liability that might arise in the event of a particular event occurring (not recognised until even actually occurs; but often disclosed in the annual report) Purpose: to set out the nancial position of a business at a particular point in time. Contains assets, liabilities and equity position at a particular point in time. Bene t must arise from some past transaction or event. Asset must be capable of reliable measurement in monetary terms. Investments (assets can be tangible (physical substance) or intangible(e. g copyrights, trademarks, patents, goodwill)) External claims: liabilities the amount than a normal liability. Present obligation of entity arising from past events. Expected to result in an out ow from the entity of resources embodying economic bene ts. Warranty provisions and other social or moral obligations. Provision for employee bonuses or owner"s distributions.
