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Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.1 Chapter 8 Statements of financial.

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Presentation on theme: "Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.1 Chapter 8 Statements of financial."— Presentation transcript:

1 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.1 Chapter 8 Statements of financial position

2 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.2 Learning objectives After you have studied this chapter, you should be able to: Explain why statements of financial position are not part of the double entry system Explain why it is important that account balances are shown under appropriate headings in the statement of financial position

3 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.3 Learning objectives (Continued) Explain the meanings of the terms non-current asset, current asset, current liability and non-current liability Describe the sequence in which each of the five main categories of items appear in the statement of financial position Describe the sequence in which each non-current asset is entered in the statement of financial position

4 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.4 Learning objectives (Continued) Describe the sequence in which each current asset is entered in the statement of financial position Draw up a statement of financial position from information given in a trial balance

5 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.5 Definition The statement of financial position is a list of balances arranged according to whether they are assets, capital or liabilities and so depict the financial situation on a specific date.

6 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.6 The statement of financial position The statement of financial position used to be called the balance sheet. The statement of financial position contains details of assets, liabilities and capital – all those accounts with balances that were not included in the income statement. The statement of financial position is not part of the double entry system.

7 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.7 The format for a statement of financial position Non-current assets – assets that are: Not bought primarily to be sold. Bought to be used in the business. Are expected to be of use in the business for a long time. Non-current assets are listed first in the statement of financial position starting with those the business will keep the longest.

8 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.8 Current assets – assets that are: Likely to change in the short term and certainly within 12 months. Include: items held for resale, accounts receivable, cash in the bank and in hand. Current assets are listed in increasing order of liquidity. The format for a statement of financial position (Continued)

9 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.9 Current liabilities: Liabilities that have to be paid within a year of the date of the statement of financial position. Examples include bank overdrafts and accounts payable. The format for a statement of financial position (Continued)

10 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.10 Non-current liabilities: Liabilities that have to be paid more than a year after the date of the statement of financial position. Examples include bank loans and loans from other businesses. The format for a statement of financial position (Continued)

11 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.11 The format for a statement of financial position (Continued)

12 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.12 Learning outcomes You should have now learnt: That all balances remaining on a trial balance after the income statement for a period has been drawn up are displayed in a statement of financial position dated ‘as at’ the last day of the period That the statement of financial position is not part of the double entry

13 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.13 Learning outcomes (Continued) That the statement of financial position starts with non-current assets at the top, then current assets, then current liabilities, then non-current liabilities, then capital The meanings of the terms non-current asset, current asset, current liability and non-current liability That you list non-current assets in descending order starting with those that will remain in use in the business for the longest time

14 Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 8.14 Learning outcomes (Continued) That you list current assets from top to bottom in increasing order of liquidity That current assets less current liabilities are known as ‘net current assets’ or ‘working capital’ Why the figure for net current assets is very important


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