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The statement of financial position and non-current assets
Published on July 31, 2017 23 min
Other Talks in the Series: Accounting Records and Accounts
Hello. This is Huw Morgan from the Alliance Manchester Business School. This is the fifth talk in a series of lectures on accounting record.
In this session, we will be reviewing the structure of the Statement of Financial Position, and the need to separate current from non-current assets and liabilities. Our focus will then, be on accounting for non-current assets. When they can be recognised and how to record their use over time, in accordance with the matching concept. We should also see ways in which a business can maintain a control over these assets using an asset register.
Over the past sessions we've been using Shaun's Smoothies, a small but growing business, to illustrate the need for progressively detailed accounting records. We now revisit Shaun at the end of his first accounting year. The summarised trial balance shown here, has been extracted from the nominal ledger. Shaun's business has grown, from a lemonade stand to a high street shop which he owns, funded partly from equity introduced by Shaun from an inheritance, and in part from a bank loan. Note that the profit generated in the year of 19,389, has already been calculated so there are no income and expense items in this trial balance. The successful first year is the result of developing a menu of healthy fruit and veg smoothies, and the shop is located next to a large gym, bringing in a lot of thirsty, health conscious, customers with disposable income. The business is now trading on credit terms, as well as for cash, which explains the inclusion of trade receivables where customers owe the business, and trade payables where the business owes its suppliers. You may notice that this trial balance is presented in a manner that supports the accounting equation. Assets equals liabilities plus equity. All of the assets are listed first, and all are on the debit side of the trial balance, coming to the same total as the liabilities and equity recorded on the credit side.