Financial statement, balance sheet

1. Statements of FinancialStatements of Financial
position : Balance Sheetposition : Balance Sheet
Statements of FinancialStatements of Financial
position : Balance Sheetposition : Balance Sheet
DBS3024 BUSINESS TRANSACTIONDBS3024 BUSINESS TRANSACTION
by
Stephen Ong
Visiting Fellow, Birmingham City
University Business School
Visiting Professor, Shenzhen
University

2. Today’s OverviewToday’s Overview

3. 1 - 3
11
The Balance SheetThe Balance Sheet

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Learning objectivesLearning objectives
After this lecture, you should beAfter this lecture, you should be
able to:able to:
 Explain why statements of financialExplain why statements of financial
position areposition are not part of the doublenot part of the double
entry systementry system
 Explain why it is important thatExplain why it is important that
account balancesaccount balances are shown underare shown under
appropriate headings in theappropriate headings in the
statement of financial positionstatement of financial position

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Learning objectives (Continued)Learning objectives (Continued)
 Explain the meanings of the termsExplain the meanings of the terms
non-current asset, current assetnon-current asset, current asset,,
current liability and non-currentcurrent liability and non-current
liabilityliability
 Describe the sequence in which eachDescribe the sequence in which each
of theof the five main categories of itemsfive main categories of items
appear in the statement of financialappear in the statement of financial
positionposition
 Describe the sequence in which eachDescribe the sequence in which each
non-current assetnon-current asset is entered in theis entered in the
statement of financial positionstatement of financial position

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Learning objectives (Continued)Learning objectives (Continued)
 Describe the sequence in whichDescribe the sequence in which
eacheach current assetcurrent asset is entered inis entered in
the statement of financialthe statement of financial
positionposition
 Draw up a statement of financialDraw up a statement of financial
position from information givenposition from information given
in ain a trial balancetrial balance

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DefinitionDefinition
The statement of financial position isThe statement of financial position is
aa list of balanceslist of balances arrangedarranged
according to whether they areaccording to whether they are
assets, capital orassets, capital or
liabilitiesliabilities
and so depict the financialand so depict the financial
situation on a specific date.situation on a specific date.

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The statement of financial positionThe statement of financial position
 The statement of financial positionThe statement of financial position
used to be calledused to be called the balance sheetthe balance sheet..
 The statement of financial positionThe statement of financial position
contains details ofcontains details of assets, liabilitiesassets, liabilities
and capitaland capital – all those accounts with– all those accounts with
balances that werebalances that were not included in thenot included in the
income statement.income statement.
 The statement of financial position isThe statement of financial position is
not part of the double entrynot part of the double entry system.system.

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The format for a statement of financialThe format for a statement of financial
positionposition
Non-current (Fixed) assetsNon-current (Fixed) assets – assets– assets
that are:that are:
 Not bought primarily to beNot bought primarily to be sold.sold.
 Bought to beBought to be usedused in the business.in the business.
 Are expected to be of use in the businessAre expected to be of use in the business
for afor a long timelong time..
Non-current assets are listed first in theNon-current assets are listed first in the
statement of financial position startingstatement of financial position starting
with those the business willwith those the business will keep thekeep the
longest.longest.

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Current assetsCurrent assets – assets that– assets that
are:are:
 Likely toLikely to change in the short termchange in the short term
and certainly within 12 months.and certainly within 12 months.
 Include: items held forInclude: items held for resale,resale,
accounts receivable, cashaccounts receivable, cash in thein the
bank and in hand.bank and in hand.
Current assets are listed inCurrent assets are listed in
increasing order of liquidity.increasing order of liquidity.
The format for a statement ofThe format for a statement of
financial position (Continued)financial position (Continued)

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Current liabilities:Current liabilities:
 Liabilities that have to beLiabilities that have to be paidpaid
within a yearwithin a year of the date of theof the date of the
statement of financial position.statement of financial position.
 Examples includeExamples include bankbank
overdrafts and accountsoverdrafts and accounts
payable.payable.
The format for a statement ofThe format for a statement of
financial position (Continued)financial position (Continued)

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Non-current (Long term)Non-current (Long term)
liabilities:liabilities:
 Liabilities that have to beLiabilities that have to be paidpaid
more than a yearmore than a year after the date ofafter the date of
the statement of financialthe statement of financial
position.position.
 Examples includeExamples include bank loans andbank loans and
loansloans from other businesses.from other businesses.
The format for a statement ofThe format for a statement of
financial position (Continued)financial position (Continued)

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The format for a statement ofThe format for a statement of
financial position (Continued)financial position (Continued)
Non Current AssetsNon Current Assets
Current AssetsCurrent Assets
Current LiabilitiesCurrent Liabilities
FROMFROM
INCOMEINCOME
STATEMENTSTATEMENT

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Learning outcomesLearning outcomes
You should have now learnt:You should have now learnt:
 ThatThat all balances remainingall balances remaining on a trialon a trial
balance after the income statement forbalance after the income statement for
a period has been drawn up area period has been drawn up are
displayed in a statement of financialdisplayed in a statement of financial
position datedposition dated ‘as at’ the last day of the‘as at’ the last day of the
periodperiod
 That the statement of financial positionThat the statement of financial position
is not part of the double entryis not part of the double entry

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Learning outcomes (Continued)Learning outcomes (Continued)
 That the statement of financial positionThat the statement of financial position
starts withstarts with non-current assets at the top,non-current assets at the top,
then current assets, then currentthen current assets, then current
liabilities, then non-current liabilities,liabilities, then non-current liabilities,
then capitalthen capital
 The meanings of the terms non-currentThe meanings of the terms non-current
asset, current asset, current liability andasset, current asset, current liability and
non-current liabilitynon-current liability
 That you listThat you list non-current assets innon-current assets in
descending orderdescending order starting with thosestarting with those
that will remain in use in the business forthat will remain in use in the business for
thethe longest timelongest time

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Learning outcomes (Continued)Learning outcomes (Continued)
 That you list current assetsThat you list current assets fromfrom
top to bottom in increasing ordertop to bottom in increasing order
of liquidityof liquidity
 That current assets less currentThat current assets less current
liabilities are known asliabilities are known as ‘net current‘net current
assets’ orassets’ or ‘working capital’‘working capital’
 Why the figure for net currentWhy the figure for net current
assets is very importantassets is very important

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22
Computerised accountingComputerised accounting
systemssystems

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Learning objectivesLearning objectives
After this lecture, you should be able to:After this lecture, you should be able to:
 Explain how computerised accountingExplain how computerised accounting
systems mimic manual accountingsystems mimic manual accounting
systems and can do everything that issystems and can do everything that is
done by a manual accounting systemdone by a manual accounting system
 Describe how computerised accountingDescribe how computerised accounting
systems automate most of the entriessystems automate most of the entries
required in a manual accounting systemrequired in a manual accounting system
including, in some cases, the initial entryincluding, in some cases, the initial entry
for each transactionfor each transaction

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Learning objectives (Continued)Learning objectives (Continued)
 Describe and explain the advantagesDescribe and explain the advantages
and pitfalls of using a computerisedand pitfalls of using a computerised
accounting systemaccounting system
 Explain the importance of fullyExplain the importance of fully
integrating a computerised accountingintegrating a computerised accounting
systemsystem
 Explain the importance of fullExplain the importance of full
compatibility between the variouscompatibility between the various
components of a computerisedcomponents of a computerised
accounting systemaccounting system

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Learning objectives (Continued)Learning objectives (Continued)
 Explain the need to take great careExplain the need to take great care
when converting from a manualwhen converting from a manual
accounting system to a computerisedaccounting system to a computerised
oneone

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Computers in accountingComputers in accounting
 Computer accounting packagesComputer accounting packages
use the fundamentaluse the fundamental principlesprinciples
of accounting.of accounting.
 Therefore, even the mostTherefore, even the most
sophisticated computersophisticated computer
accounting system needs to beaccounting system needs to be
operated by someone withoperated by someone with
accounting knowledgeaccounting knowledge..

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Benefits of using aBenefits of using a
computerised systemcomputerised system
1.1. You can perform the processing muchYou can perform the processing much
moremore quickly, consistently andquickly, consistently and
accurately.accurately.
2.2. Output of reports isOutput of reports is immediateimmediate..
3.3. A computerised system should be ableA computerised system should be able
toto flag inconsistenciesflag inconsistencies..
4.4. Computerised systems are capable ofComputerised systems are capable of
exception reporting to flag warningsexception reporting to flag warnings..
5.5. Most systems are capable ofMost systems are capable of enhancedenhanced
reporting.reporting.

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Key aspects of theKey aspects of the
computerised systemcomputerised system
 The computerised system will workThe computerised system will work
on the same principles ason the same principles as doubledouble
entry bookkeepingentry bookkeeping but the entriesbut the entries
only have to beonly have to be made oncemade once..
 Reports can be run at any time.Reports can be run at any time.
 The accounts are run using aThe accounts are run using a
system of codessystem of codes, all classified for, all classified for
ease of reference.ease of reference.

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Integration of other modulesIntegration of other modules
It is possible to integrate other modulesIt is possible to integrate other modules
such as:such as:
 Inventory, so thatInventory, so that stock levels arestock levels are
updated automaticallyupdated automatically..
 Sales order processing, so that ordersSales order processing, so that orders
automatically generate invoicesautomatically generate invoices..
 Purchase order processing, so thatPurchase order processing, so that
orders can beorders can be sent to suppliers andsent to suppliers and
converted to inventory.converted to inventory.

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The integrated computerisedThe integrated computerised
systemsystem

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Accounting information systemsAccounting information systems
 An AIS is a total suite of components thatAn AIS is a total suite of components that
comprises the inputs, storage, transactioncomprises the inputs, storage, transaction
processing, collating and reporting of data.processing, collating and reporting of data.
 The objective is to collect and store data toThe objective is to collect and store data to
generate meaningful output for decision-generate meaningful output for decision-
making.making.
 An AIS does not have to be computerisedAn AIS does not have to be computerised
but the benefits are greater when it is, andbut the benefits are greater when it is, and
an AIS is only fully effective when all thean AIS is only fully effective when all the
components are integrated.components are integrated.

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Electronic disseminationElectronic dissemination
One of the benefits of a computerisedOne of the benefits of a computerised
AIS is that output (and funds) can beAIS is that output (and funds) can be
sent electronically, including all Tax /sent electronically, including all Tax /
Inland Revenue Department (LHDN)Inland Revenue Department (LHDN)
reports and returns resulting in:reports and returns resulting in:
 Improved speed, accuracy andImproved speed, accuracy and
securitysecurity
 Lower administration costsLower administration costs
 Lower bank chargesLower bank charges
 Reduction in the use of paperReduction in the use of paper

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Considering an AISConsidering an AIS
 When and how to introduce the AIS?When and how to introduce the AIS?
 Which AIS to use and whether to customise?Which AIS to use and whether to customise?
 Who is responsible for the AIS?Who is responsible for the AIS?
 How long will it take to introduce?How long will it take to introduce?
 Who will need training and when?Who will need training and when?
 What hardware will be needed and when?What hardware will be needed and when?
 What safeguarding procedures are needed?What safeguarding procedures are needed?
 Who will run tests and how?Who will run tests and how?
 What costs and benefits are there?What costs and benefits are there?

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Data safeguardsData safeguards
 Prevention of data theft byPrevention of data theft by
using a (secure) password.using a (secure) password.
 Prevention of fraudulent orPrevention of fraudulent or
malicious data manipulation bymalicious data manipulation by
using security measures.using security measures.
 Prevention of data loss byPrevention of data loss by
implementing and using aimplementing and using a
back-up system.back-up system.

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Learning outcomesLearning outcomes
You should have now learnt that:You should have now learnt that:
1.1. Bookkeeping and accounting skills andBookkeeping and accounting skills and
knowledge are more important thanknowledge are more important than
computing skills and knowledge when acomputing skills and knowledge when a
switch is made from a manualswitch is made from a manual
accounting system to a computerisedaccounting system to a computerised
accounting system.accounting system.
2.2. The user interface of an accountingThe user interface of an accounting
package often looks similar to those ofpackage often looks similar to those of
other frequently used Windows-basedother frequently used Windows-based
software packages.software packages.

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Learning outcomesLearning outcomes
(Continued)(Continued)
3.3. Computerised accounting systems canComputerised accounting systems can
do everything a manual accountingdo everything a manual accounting
system can do, but does them quicker,system can do, but does them quicker,
more accurately, more consistently andmore accurately, more consistently and
with greater flexibility.with greater flexibility.
4.4. A considerably enhanced ability toA considerably enhanced ability to
obtain reports is available from aobtain reports is available from a
computerised accounting systemcomputerised accounting system
compared to a manual accountingcompared to a manual accounting
system.system.

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Learning outcomesLearning outcomes
(Continued)(Continued)
5.5. The various records maintained in aThe various records maintained in a
computerised accounting system mimiccomputerised accounting system mimic
those in a manual accounting system,those in a manual accounting system,
thought the names of some of the recordsthought the names of some of the records
may be different.may be different.
6.6. Account codes are used in computerisedAccount codes are used in computerised
accounting systems instead of folioaccounting systems instead of folio
numbers.numbers.
7.7. Maximised integration of the variousMaximised integration of the various
components in a computerisedcomponents in a computerised
accounting system generates theaccounting system generates the

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Learning outcomes (Continued)Learning outcomes (Continued)
8.8. Compatibility between the variousCompatibility between the various
components in a computerisedcomponents in a computerised
accounting system is essential if it is toaccounting system is essential if it is to
operate effectively.operate effectively.
9.9. One of the major benefits ofOne of the major benefits of
computerised accounting systems iscomputerised accounting systems is
the ability to generate electronic output.the ability to generate electronic output.
10.10.Implementing adequate controls toImplementing adequate controls to
safeguard data is essential whensafeguard data is essential when
accounting systems are computerised.accounting systems are computerised.

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Learning outcomes (Continued)Learning outcomes (Continued)
11.11.Implementing a switch to aImplementing a switch to a
computerised accountingcomputerised accounting
system is a non-trivial tasksystem is a non-trivial task
that should never be donethat should never be done
lightly and needs to belightly and needs to be
done with the greatest ofdone with the greatest of
care.care.

35. Resources : Core ReadingResources : Core Reading
 Wood, Frank and Robinson, SheilaWood, Frank and Robinson, Sheila
(2009)(2009) Bookkeeping and AccountsBookkeeping and Accounts ,7,7thth
Edition, Pearson/ FT Prentice HallEdition, Pearson/ FT Prentice Hall
 Wood, Frank and Sangster, Alan
(2012) Business Accounting ,12th
Edition, Pearson/ FT Prentice Hall
 Fortes, Hilary (2011) Accounting
Simplified , Pearson/ FT Prentice Hall

36. QUESTIONS?QUESTIONS?