FA2 Balance sheet

• What is the main topic of Lecture 2?

  Statement of Financial Position I
• What are the main topics covered in the lectures?

  • Lecture 1: Introduction to Financial Accounting
  • Lectures 2, 3: Balance Sheet
  • Lectures 4, 5, 6: Income Statement
  • Lecture 7: Accounting cycle
• What does the Statement of Financial Position represent?

  A snapshot of a business's financial position
• How can financial position be understood?

  From resources and claims perspectives
• What is a creditor?

  An entity the business owes money to
• What is the structure of the Statement of Financial Position?

  • Resources (Assets)
  • Claims (Liabilities + Equity)
• What is an asset?

  A resource expected to provide future benefits
• When is an asset recognized?

  When it generates future economic benefits
• What is inventory?

  Goods for sale or raw materials
• What is a trade receivable?

  Money owed from customers after credit sales
• What is a prepaid expense?

  Payments made for future services
• What is a liability?

  An obligation to pay cash or deliver goods
• When is a liability recognized?

  When there is an obligation from past transactions
• What is trade payable?

  Money owed to suppliers
• What is an accrued expense?

  Expenses built up but not yet paid
• What is equity?

  Claim on assets by owners after liabilities
• How is equity calculated?

  Equity = Assets - Liabilities
• What is contributed capital?

  Capital contribution by owners
• What is retained profit?

  Accumulated profits after withdrawals
• What is the accounting equation?

  Assets = Liabilities + Equity
• What must always hold true in accounting transactions?

  The accounting equation must balance
• If assets increase, what must happen to liabilities or equity?

  They must also increase
• If liabilities increase by £100, what is the change in assets?

  Assets must increase by £100
• If liabilities are £60 and equity is £30, what is cash if noncash assets are £70?

  Cash is £20
• What are the steps to record a transaction?

  1. Identify specific accounts to use
  2. Determine impacts on related accounts
• What is the journal entry for Sarah's contribution of £30,000?

  Dr. Cash £30,000, Cr. Contributed capital £30,000
• What is the journal entry for the bank loan of £10,000?

  Dr. Cash £10,000, Cr. Borrowing £10,000
• What is the journal entry for purchasing 1,000 textbooks for £15 each?

  Dr. Inventory £15,000, Cr. Cash £15,000
• What are the rules for double-entry bookkeeping?

  1. At least one debit and one credit entry
  2. Debits must equal credits
  3. No negative numbers allowed
• What is the journal entry for borrowing £1,000 from a bank?

  Dr. Cash £1,000, Cr. Borrowing £1,000
• What is the journal entry for repaying £1,000?

  Dr. Borrowing £1,000, Cr. Cash £1,000
• What is the balance sheet format for assets?

  Assets listed with their values
• What are the key points to remember about the accounting equation?

  • Assets = Liabilities + Equity
  • Used to record transactions
  • Double-entry bookkeeping uses this equation