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Chapter 34 Statement of financial position
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Money retained in business to help it grow and not distributed to the shareholders. Money invested in the business. NOT CASH
Reserves and retained earnings (profit and reserves)
Priority over ordinary shares
Preference shares
Show an ownership of the business
Ordinary shares
Value of funds in the form of shares and retained profit
Shareholders’ equity/total equity
Net assets
Total assets (current assets + non-current assets) - current liabilities - non-current liabilities
Net current assets (working capital)
Current assets - current liabilities
Other businesses (suppliers) who have not yet been paid
Creditors (trade/other payables)
Fixed amount over a fixed period of time, less than one year
Short-term loan
Agreement with the bank to avoid cashflow problems
Overdraft
When debtors don’t pay
Bad debts
Money (most liquid of current assets)
Cash
Money owed to the business
Debtors (trade/other receivables)
Stock in the form of materials, unfinished goods, finished goods
Inventory
Everything owned by the business which is not a non-current (fixed) asset
Current assets
Investments made by business in government bonds or long term shares
Financial fixed assets
Need to be cautious (careful) when valuing a business
Prudence
Protecting the intellectual property of the business
Patents
Value for a business’ reputation/brand
Goodwill
Assets that can’t be seen (e.g. patent/goodwill/)
Intangible assets
Assets that can be seen
Tangible assets
Building, machines, equipment owned by a business
Non-current (fixed) assets
Allowance for the wear and tear on fixed tangible assets - a equipment ages the value decreases
depreciation
The ability to convert assets into cash
Liquidity
Money owed for more than one year e.g. mortgages/debentures/bank loans (more than 1 year)
Non-current liabilities
Money owed for less than one year
Current liabilities
What the business owes
Liabilities
What the business owns
Assets
A method of recording the value or wealth of a business at a given moment in time
Statement of financial position
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