ACCT1501 Lecture Notes - Lecture 2: Current Liability, Balance Sheet, Income Statement
18 May 2018
School
Department
Course
Professor
Friday, 10 March 2017
Accounting & Financial Management
Measuring & Evaluating Financial Position & Performance
-Balance Sheet: Statement summarising the financial position of an enterprise at a
particular point in time
•Includes name, date, currency (e.g. AUD)
•Provides information about:
-Financial structure - debt to equity ratio
-Liquidity - ease of converting assets to cash (short-term focus) - working capital,
current ratio
-Solvency - ability to pay debts when due (longer-term focus) - debt to equity ratio
-Recognition Criteria of Assets/ Liabilities:
•Probable that any future economic benefit associated with item will flow to or from
entity
•Item has cost/value that can be measured reliably
-Asset: Resource controlled (not necessarily owned) by an entity as a result of past
events, from which future economic benefits are expected to flow to entity
•Future Economic Benefits - Assets used to provide goods/ services to generate net
cash flows
•Control by Entity - Capacity of entity to benefit from asset in pursuing objectives & to
deny/regulate access of others
•Occurrence of Past Transactions/ Events - Transaction of other event giving entity
control over future economic benefits must have occurred (e.g. paid cash/ credit)
•Current Asset - Realise benefits in next 12 months from balance sheet date
•Non-Current Asset - Realise benefits over a longer period
-Liability: Present obligation of entity arising from past events, expected to result in
outflow from entity of resources embodying economic benefits
•Present Obligation - Must exist & involves settlement in future
•Adverse financial consequences - entity obligated to sacrifice economics benefits
•Current Liability - Paid off within one year of balance sheet date
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Document Summary
Balance sheet: statement summarising the nancial position of an enterprise at a particular point in time: includes name, date, currency (e. g. aud, provides information about: Financial structure - debt to equity ratio. Liquidity - ease of converting assets to cash (short-term focus) - working capital, current ratio. Solvency - ability to pay debts when due (longer-term focus) - debt to equity ratio. Recognition criteria of assets/ liabilities: probable that any future economic bene t associated with item will ow to or from entity, item has cost/value that can be measured reliably. Friday, 10 march 2017: non-current liability - will remain liabilities or at least next year. Working capital = current assets - current liability: low/ negative working capital indicative of short-term nancial dif culties. Current ratio = current assets / current liabilities. Closed" & balance transferred to retained pro ts account (balance sheet) at end of each accounting period: balance sheet accounts are permanent accounts.
