1ST QUARTER FLASHCARDS
(46 cards)
STATEMENT OF FINANCIAL POSITION
A statement of financial position formerly called a balance sheet is a structured statement that shows the assets, liabilities and equity of a business entity. It is a snapshot of the company’s financial condition at a specific moment in time usually during the month end or year end.
ASSETS
These are the economic resources you control that have resulted from past events and can provide you with economic benefits.
4 Criteria of a Current Asset
- It is expected to be realized in or is intended for sale or consumed in the entity’s normal operating cycle.
- It is held primarily for the purpose of being traded.
- It is expected to be realized within twelve months after the date of the statement of financial position.
- It is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the date of the statement of financial position.
Current Asset accounts
Cash, Accounts Receivable, Prepaid Expense, Raw Materials, Inventory, Short-Term Investment
Non-current Assets
Assets that do not meet any of the criteria required for current assets. In other words, all other assets that are not current shall be classified as noncurrent assets. It includes assets that are long-term in nature like fixed assets, long-term investments, and intangibles.
Fixed assets
it includes the Property, Plant, and Equipment (PPE) such as Land, Building, Furniture and Fixtures, equipment, vehicle, etc. These are acquired for use in operations and have an estimated useful life of more than one year.
Long-term investments
are assets held by an entity intended to accumulate wealth or resources by means of capital distribution in the form of royalties, interest, dividends, rentals, capital appreciation, or other benefits obtained through trading relationships with the intention of holding the investments for more than one year.
Intangibles
are assets without physical substance like goodwill, patents, copyrights, licenses, franchises, trademarks, and brand names.
LIABILITIES
It is something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.
4 Criteria of Current Liabilities
- It is expected to be settled in the entity’s normal operating cycle.
- It is held primarily for the purpose of being traded.
- It is due to be settled within twelve months after the balance sheet date.
- The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.
Accounts Payable
include debts arising from the purchase of an asset or acquisition of services of an account.
Notes Payable
include debts arising from the purchase of an asset or acquisition of services on account evidenced by a promissory note.
Unearned Revenues
represent obligations of the business arising from advance payments received before goods or services are provided to the customer.
Accrued Liabilities
include amounts owed to others for expenses already incurred but not yet paid. Examples of these are salaries payable, utilities payable, taxes payable, and interest payable.
Non-current Liabilities
are long-term liabilities or obligations which are payable for a period longer than one year. All other liabilities that are not current shall be classified as noncurrent liabilities.
Mortgage Payable
the long-term debt of a business with security or collateral in the form of real properties.
Bonds Payable
a certificate of indebtedness under the seal of a corporation, specifying the terms of repayment and the rate of interest to be charged.
EQUITY
It is the residual interest in the assets of the entity after deducting all its liabilities.
But in the preparation of the Statement of Financial Position, it is presented as:
- Account Form – it follows the accounting equation where assets are listed on the left-hand column of the report with the liabilities and owner’s equity listed in the right-hand columns.
- Report Form – it shows in one straight column the assets, followed by liabilities and owner’s equity.
STATEMENT OF COMPREHENSIVE INCOME
(formerly known as the income statement) is a structured financial statement that shows the financial performance of a business entity for a given period. It shows the profit/loss earned by the business for the period. A period covered by an income statement may be monthly, quarterly, semi-annually, or annually.
Revenue/Income
refers to increases in economic benefits during the accounting period in the form of enhancement of assets or decreases of liabilities that result in increases in equity, other than those relating to investments by the business owners.
Expenses
are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or increases of liabilities that result in decreases in equity, other than those relating to distributions to the business owners.
Net Income/Loss
is the result of the operation. If the income is greater than the expenses, then the result is net income while if the expenses are greater than income, then the result is a net loss.
TEMPORARY ACCOUNTS
Also known as nominal accounts are the accounts found under the SCI. They are called such because at the end of the accounting period, balances under these accounts are transferred to the capital account, thus having only temporary amounts and resulting to zero beginning balances at the beginning of the following year.
