Overview

481. Overview

Statements

One person

Owner has unlimited liability

Several people

Business separate in law from owners

Owners have limited liability

	Management	Financial
Purpose	Help management run business	Required by law
Timing	Monthly	Yearly
Requirement	No legal requirement	Legally required
Layout	Useful	International Financial Reporting Standards (IFRS)
Reporting	Internal	External

Every transaction has 2 effects (+ and -)

List of:

Concept	Definition	Example/Notes
Asset	Resource controlled by the business expected to provide future economic benefits.	Cash, inventory, equipment, receivables.
Liability	Present obligation arising from past events, settlement expected to result in outflow of resources.	Loans, payables, accruals.
Capital Owner’s Equity	Owner’s claim on business assets after liabilities; money invested + retained profits.	Net assets
Current Asset	Expected to be used or converted to cash within 12 months.	Inventory, receivables, cash.
Non-current Asset	Expected to provide benefit over more than 12 months.	Property, plant, equipment.
Current Liability	Obligation due within 12 months.	Accounts payable, short-term loans.
Non-current Liability	Obligation due after 12 months.	Long-term loans, bonds payable.

Concept	Definition	Example/Notes
Revenue Income	Inflows from selling goods or services in ordinary course of business.	Sales, service income.
Expense	Outflows or use of assets in earning revenue.	Rent, salaries, utilities.
Capital Expenditure CapEx	Spending to acquire or improve non-current assets that provide benefits over multiple periods	Machinery, building.
Revenue Expenditure RevEx	Spending on operating costs whose benefits are consumed within the current accounting period	Repairs, rent, electricity.

Concept	Definition	Example/Notes
Inventory	Goods held for resale or raw materials to make goods.	Retail: finished goods; Manufacturing: raw materials.
Accounts Payable Payable	Money owed to suppliers/creditors.	Purchase of goods on credit.
Accounts Receivable Receivable	Money owed to the business by customers.	Sales on credit.
Drawings Withdrawals	Assets taken out by owner for personal use.	Cash withdrawn, goods taken for personal use.
Bank Cash	Liquid assets held by the business.	Cash in hand, cash at bank.

Owns = Owes

Assets = Liabilities + Capital (Accounting Equation)

Current vs Non-current is always about the 12-month rule

Revenue - Expenses = Profit / Loss

Capital + Additional Investment - Drawings + Profit - Loss = Closing Capital