WEEK 3 Fin trans.pptVIP

Accounting For Management Decisions (DBA10AMD) WEEK 3 MEASURING AND REPORTING FINANCIAL TRANSACTIONS READING: TEXT CH 3 Learning Objectives Explain the nature and purpose of the balance sheet Demonstrate an understanding of assets in terms of definition, recognition and measurement. Demonstrate an understanding of liabilities in terms of definition, recognition and measurement. Discuss the nature of owner’s equity Explain the basic accounting equation Explain the effect of transactions on the balance sheet accounts Discuss the main factors that influence the content and values in a balance sheet Nature and Purpose of a Balance Sheet Learning Objective: Explain the nature and purpose of the balance sheet The purpose of the balance sheet is to set out the financial position of a business at a particular point in time It contains a photo of the A, L and OE of the entity at that point in time As from January 2009 an accounting standard recommendation is that the balance sheet should be referred to as a ‘statement of financial position’ Assets Learning Objective: Demonstrate and understanding of assets in terms of definition, recognition, measurement and classification Definition: Asset: (AASB Framework) “A resource controlled by the entity as a result of past events, and from which economic benefits are expected to flow to the entity” Assets cont’d The main identifying characteristics of assets are: Expected future economic benefit The business has exclusive right to control the benefit The benefit must arise from a past transaction or event The asset must be capable of reliable measurement in monetary terms Note that these conditions limit the kind of items that may be referred to as ‘assets’ in financial reports Assets cont’d Some examples of items that appear as assets in a business balance sheet include: Freehold premises Cash Machinery and equipment Inventory Patents and trademarks Debtors Investments Assets may be either tangible (items with a physical s