What is a balance sheet used for?
To record, classify, summarise the events affecting the economic wealth of a person, and/or a company using a specific lange and rules
What does the balance sheet provide?
- information on the economic performance of the business activity during a specific period of time
- a true and fair view
What are the 2 main accounting regulations
- USGAAP - US Generally Accepted Accounting Principles
- IFRS - International Financial Reporting Standards
-> Local adaptation: SGAP – Spanish General Accounting Plan
Accounting Principles 1. Going concern
Unless there is evidence to the contrary, it is
presumed that company will continue in operation in foreseeable
future
Accounting Principles 2. Accural
Records financial transactions when they occur, rather than only when cash is exchanged
Accounting Principles 3. Consistency
If there are several options to record transaction, the chosen option needs to be applied consistently to similar transactions over time
Accounting Principles 4. Prudence
Expenses and liabilities recognised as soon as possible (even if uncertainty exists), while revenue should only be recognised once certainty exists
Accounting Principles 5. No offsetting
Unless specifically allowed, assets and liabilities /
revenue and expense should be reported separately and not netted
Accounting Principles 6. Materiality
Strict application of certain accounting principles and criteria may be waived when the materiality of item is of little significance and does not affect fair presentation
Revenue definition
Revenue is the price charged for providing goods or services
- Revenues are earned when the good or service is provided, regardless of when payment is received (Accrual)
Expenses definition
Expenses are the cost of the goods and services used in the process of generating revenues
- Expenses are incurred when the good is consumed or a service is used, regardless of when payment is made (Accrual)
Balance sheet assets
sets of goods and rights which are a part of economic wealth -> company expects to gain future benefit
Economic wealth definition
set of resources (goods and rights) and obligations of a person or company
Balance sheet liabilities
obligations to external parties that are part of the economic wealth (past events and probable future sacrifice)
Net Equity definition
represents owners claim on company once all debts are paid / when assets are offset against liabilities
Assets = Liabilities + Net Equity
Non current assets
resources that form part of economic wealth in a permanent way
stream of economic benefits they create for firm > 1 year
Non current, intangible assets
long lived real assets, exist and can be sold, lack physical substance
Non current, intangible assets examples
patents, software, rights over leased assets, goodwill
Non current, tangible assets
Property, Plant, Equipment (PPE), investment properties
Non current, tangible assets examples
land, buildings, machinery, vehicles, furniture, computers, real estate assets of which rental earnings and / or capital goods are expected
Non current financial assets
long term financial investments into…
- group and associated companies (shares, no intention of selling)
- loans extended to third party businesses
- guarantee deposits
Current assets
assets created or used in normal operating cycle of firm (within a year), expected to have a maturity cycle equal to or shorter than products operating cycle
Current assets examples
- inventory (for sale, in production for sale, materials used in production)
- receivables
- tax refund receivables
- cash / cash equivalents
Non current liabilities
amounts due in more than a year
