Measuring and reporting Financial Position ---
There are 3 parts of Final Accounts -
1. Statement of Cash Flows
2. Income Statement
3. Statement of Financial Position
Assets are the resources that are held by a business while liabilities form the obligations of the
business. Liabilities and Equities together are called the claims of the business.
Characteristics of Assets –
1. Future benefits exist – should have monetary value in the future.
2. Benefits should arise from past transactions – future events are not accounted for.
3. Can be tangible (having physical substance) or intangible (no physical substance)
4. Business should have exclusive control over it.
5. Asset should have some present monetary value and not just psychological value.
Claims are made up of two parts --
Equity – this is the claim of the owners against the business. It is also called owners capital. The
business and the owner are two separate entities. To find out value of total equity, we can use
the formula: Equity = Capital + Profit – Drawings/Dividends.
Liabilities – these are the claims of all individuals/organizations apart from the owner. It
appears in the statement until the obligation is met.
The ACCOUNTING EQUATION followed is: Assets = Equity + Liability
Current/Non-Current Assets – Assets held for a short-term are current assets and those for
long term are non-current assets.
Assets that are held for sale/consumptions within the business operating cycle (first year) or are
easily marketable are current assets. For example - Short-term investments, inventory
Property, plant and equipment form the non-current assets and are not easily marketable.
NOTE: Assets are listed in the balance sheet in the reverse order of their liquidity. The general
format is Current Assets followed by Inventories, Trade Receivables and Cash at Bank.
Accounting Conventions
There are 3 parts of Final Accounts -
1. Statement of Cash Flows
2. Income Statement
3. Statement of Financial Position
Assets are the resources that are held by a business while liabilities form the obligations of the
business. Liabilities and Equities together are called the claims of the business.
Characteristics of Assets –
1. Future benefits exist – should have monetary value in the future.
2. Benefits should arise from past transactions – future events are not accounted for.
3. Can be tangible (having physical substance) or intangible (no physical substance)
4. Business should have exclusive control over it.
5. Asset should have some present monetary value and not just psychological value.
Claims are made up of two parts --
Equity – this is the claim of the owners against the business. It is also called owners capital. The
business and the owner are two separate entities. To find out value of total equity, we can use
the formula: Equity = Capital + Profit – Drawings/Dividends.
Liabilities – these are the claims of all individuals/organizations apart from the owner. It
appears in the statement until the obligation is met.
The ACCOUNTING EQUATION followed is: Assets = Equity + Liability
Current/Non-Current Assets – Assets held for a short-term are current assets and those for
long term are non-current assets.
Assets that are held for sale/consumptions within the business operating cycle (first year) or are
easily marketable are current assets. For example - Short-term investments, inventory
Property, plant and equipment form the non-current assets and are not easily marketable.
NOTE: Assets are listed in the balance sheet in the reverse order of their liquidity. The general
format is Current Assets followed by Inventories, Trade Receivables and Cash at Bank.
Accounting Conventions
