Lecture The Statement of Financial Position ‘A snap-shot of the company’s wealth at one moment in time’ Learning outcomes  Understand the different terminology used  Explain the nature and purpose of the three main financial statements  For “The Statement of Financial Position”  Be able to classify individual items on the statement of financial position  Be able to prepare a statement of financial position Terminology This module is taught using the terminology used under IFRS, however it is important to be aware of the old terminology, often used by small UK companies as this is often used interchangeably… International Standards UK GAAP Statement of financial position Balance Sheet Income Statement Profit & Loss statement Inventory Stock Trade receivables Debtors Trade payables Creditors Non Current Assets Fixed Assets The major financial statements – an overview Income Statement (…for period ended…) Statement of Financial Position (…as at…) Cashflow Statement (…for period ended…) The relationship between the statement of financial position, the income statement and the cash flow statement Statement of financial position Statement of financial position Statement of financial position Income statement Income statement Statement of cash flows Statement of cash flows Period Period Time The Statement of Financial Position Assets  what the company owns  have value Claims  what the company owes Equity, claims by the owners Liabilities, claims by other individuals & organisations (except the owners ) Classifying Assets  Current  Non-current Current assets Held for sale or consumption during the business’s operating cycle Expected to be sold within the next year Held principally for trading They are cash or near equivalents to cash The circulating nature of current assets Inventories (stock) Sell stock to customers Buy stock Trade receivables Cash (trade debtors) Invest cash! a Tr d e er ce b i va le p sh ca y a Non-current Assets A non-current asset is acquired by the business to generate income over a considerable period of time Current Liabilities In general, amounts payable within one year For Example: • Debts owed to suppliers for goods (‘Trade Payables’) • Bank Overdraft • Accrued expenses Working Capital Working Capital is the capital used to finance the day to day running of the business  It can be defined as current assets – current liabilities  Or … how much short term cash the company has access to Non-current liabilities In general, amounts payable in more (not current liabilities) than one year • A long term loan • Mortgage • Lease Equity and Reserves Generally Claims belonging to the owners of the enterprise For Example Owners capital or share capital Profits for this year Retained Profits from previous years The statement of financial position equation: plus equals Assets Equity Liabilities The effect of trading operations on the statement of financial position plus (minus) equals Assets Equity plus Profit (Loss) Liabilities Exercise on the Accounting Equation  Bethan Willow put £15,000 into a bank account on 1st January 2010 in order to commence a business, Willow Developments The business borrowed a further £5,000 from the bank, purchased a van for £7,000 and other equipment for £2,500 Inventory costing £9,000 is purchased out of the bank  During the first month they made a profit of £1,000 which was put in the bank and they repaid £500 of the loan Example of the Accounting Equation Remember: Assets = Claims (ie equity and liabilities) This must always hold true Transaction 1: Initial Capital Deposit Transaction 2: Bank Loan Transaction 3: Van Purchase Transaction 4: Other equipment purchase Transaction 5: Inventory Purchase Transaction 6: Profit Transaction 7: Loan repayment Example of the Accounting Equation – Further Practice Accounting & Finance An introduction McLaney & Atrill th (7 Edition) Example 2.2, page 49, Jerry & Co The Statement of Financial Position-structure: ASSETS Non-current assets Current Assets Total Assets EQUITY & LIABILITIES Equity Non-current liabilities Current liabilities Total Equity & Liabilities Format - see example 2.3, page 54 Brie Manufacturing Statement of financial position as at 31 December 2011 £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 Brie Manufacturing Statement of financial position as at 31 December 2011 (continued) £000 EQUITY AND LIABILITIES Equity 60 Non-current liabilities Long-term borrowings 50 Current liabilities Trade payables Total equity and liabilities 37 147 Example: Magnum Engineering The Statement of Financial Position-structure: ASSETS Non-current assets 113,000 Current Assets 94,500 Total Assets 207,500 EQUITY & LIABILITIES Equity Non-current liabilities Current liabilities Total Equity & Liabilities 112,500 51,000 44,000 207,500 Format - see example 2.4, page 55 Learning outcomes  Understand the different terminology use  Explain the nature and purpose of the three main financial statements  For “The Statement of Financial Position”  Be able to classify individual items on the statement of financial position  Be able to prepare a statement of financial position ... between the statement of financial position, the income statement and the cash flow statement Statement of financial position Statement of financial position Statement of financial position Income... Explain the nature and purpose of the three main financial statements  For “The Statement of Financial Position”  Be able to classify individual items on the statement of financial position  Be able... statements  For “The Statement of Financial Position”  Be able to classify individual items on the statement of financial position  Be able to prepare a statement of financial position