BUSN1001 Study Guide - Final Guide: Current Liability, Retained Earnings, Accounts Payable
Balance Sheet/Statement of Financial Position
• A statement which shows all the resources controlled, all the obligations due, and all
the owner's interest, at a point in time.
• Assets = liailities + owes’ euity
• Net assets = assets – liabilities
• Assets - the future economic benefits that are controlled by an organisation as a result
of past transactions or other past events.
• Current assets - assets that are expected to be consumed or converted to cash, usually
within the next 12 months or within the operating cycle, eg: cash, short-term
investments, accounts receivable, inventories, prepayments.
- Operating cycle - represents the time between the acquisition of the assets and
their ultimate realisation in cash or cash equivalents.
• Non-current assets - normally held on a continuing basis for a minimum period of one
year, eg: equipment, land, building, long-term investments, goodwill purchased.
• Liabilities - are the future sacrifices of economic benefits that an organisation is
presently obliged to make to other organisations or individuals as a result of past
transactions or events.
• Current liabilities – liabilities that need to be settled within 12 months after the
epotig date o i the etity’s oal opeatig yle, eg: shot-term bank loan,
bank overdraft, accounts payable and provision for employee entitlements.
• Non-current liabilities, eg: long-term bank loan.
• An expectation to pay later is not a liability if the transaction bringing the benefit has
not happened.
• Ownes’ euity - represents the claim of the owner(s) against the business:
1. Share capital - initial funds contributed plus any specific increases.
2. Retained profit (retained earnings) - profits – dividends declared.
3. Other reserves - profits that result from other events.
• Beginning retained profit + profit this period (after tax) – dividends declared during
this period (and distributions) = ending retained profits.
- ^ Provides the link between the income statement and the balance sheet.
• Double entry system - the recoding of every transaction must have at least two
components:
- Either an equal impact (increase or decrease) to both sides of the accounting
equation,
- Or equal and opposite impact to one side.
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