Atrill and McLaney, Accounting and Finance for Non-Specialists PowerPoints on the Web, 9 th edition © Pearson Education Limited 2015 Slide 2.1 Part One

Atrill and McLaney, Accounting and Finance for Non-Specialists PowerPoints on the Web, 9th edition © Pearson Education Limited 2015

Slide 2.1

Part OneFINANCIAL ACCOUNTING

Chapter 2MEASURING AND REPORTING

FINANCIAL POSITION


Slide 2.2

LEARNING OUTCOMES

You should be able to:

Prepare a simple statement of financial position and interpret the information that it contains

Explain the nature and purpose of the three major financial statements

Discuss the uses and limitations of the statement of financial position for decision-making purposes

Discuss the accounting conventions underpinning the statement of financial position


Slide 2.3

The major financial statements – an overview

Income statement

Statement of financial position

Statement of cash flows


Slide 2.4

The relationship between the major financial statements

Income statement






TimePeriod 2Period 1

Income statement

Figure 2.1 The relationship between the major financial statements


Slide 2.5

Decision chart for identifying an accounting asset

Is there a probable future benefit?

Is there a right to control the resource?

Does the economic benefit arise from a past transaction or event?

Can the resource be reliably measured in financial terms?

Accounting asset

Not an accounting

asset

Yes

Yes

Yes

Yes

No

No

No

No

Figure 2.2 Decision chart for identifying an accounting asset


Slide 2.6

Equity

Liabilities

Claims


Slide 2.7

The accounting equation

LiabilitiesAssets Equity= +


Slide 2.8

The effect of trading transactions on the accounting equation

The accounting equation can be extended as follows:

Profit (Loss)

Assets Equity Liabilities= ++

(−)


Slide 2.9

The classification of assets

The classification of assets may vary according to the

nature of the business:

Current assets

Non-current assets


Slide 2.10

Current assets

Expected to be sold within the next year

Held principally for trading

Held for sale or consumption during the business’s operating cycle

They are cash or near equivalents to cash


Slide 2.11

Non-current assets

Do not meet the definition of current assets


Slide 2.12

The circulating nature of current assets

CashTrade

receivables(trade debtors)

Inventories(stock)

Figure 2.3 The circulating nature of current assets


Slide 2.13

The classification of claims

Current liabilities

Non-current liabilities


Slide 2.14

Current liabilities

Held principally for trading purposes

Due to be settled within a year after the statement of financial position

date

Expected to be settled within the business’s normal operating cycle

No right to defer settlement beyond a year after the statement of

financial position date


Slide 2.15


Do not meet the definition of current liabilities


Slide 2.16

Brie ManufacturingStatement of financial position as at 31 December 2013

£000

ASSETS

Non-current assets

Property 45

Plant and equipment 30

Motor vans 19

94

Current assets

Inventories 23

Trade receivables 18

Cash at bank 12

53

Total assets 147


Slide 2.17

Brie ManufacturingStatement of financial position as at 31 December 2013

(Continued)

£000

EQUITY AND LIABILITIES

Equity 60


Long-term borrowings 50

Current liabilities

Trade payables 37

Total equity and liabilities 147


Slide 2.18

Standard layout Non-current

assets

Currentassets

Totalassets

plus

equals

minus


Currentliabilities

plus

Equity

equals

Alternative layout

Figure 2.4 Layouts for the statement of financial position

equals

Non-current assets

Currentassets

Totalassets

plus

equals

Equity

plus

plus

Equity +liabilities


Currentliabilities


Slide 2.19

Business entity

convention

Dual aspect

convention

Prudence convention

Historic cost

convention

Going concern

convention

Statement of financial

position

Accounting conventions influencing the statement of financial position

Figure 2.5 Accounting conventions influencing the statement of financial position


Slide 2.20

Money measurement

Key measurement problems:

Goodwill and brands

Human resources

Monetary stability


Slide 2.21

Uses of the statement of financial position

Can provide a basis for assessing the value of the business

Relationships between assets and claims can be assessed

Shows how the business is financed and how funds are deployed

Performance can be better assessed

Documents

Atrill and McLaney, Accounting and Finance for Non-Specialists PowerPoints on the Web, 9 th edition © Pearson Education Limited 2015 Slide 2.1 Part One