Accounting. The Balance Sheet Liabilities. Dr. Clive Vlieland-Boddy FCA FCCA MBA. 4 Fundamental Accounting Concepts again!. Going Concern - That the business will continue and not be liquidated.
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The Balance Sheet
FCA FCCA MBA
The Assets = Liabilities + Shareholders
Assets = Liabilities & Equity
A liability is what its name says. It is a responsibility of the enterprise and is some form of debt.
There are 2 essential categories of these.
Those that are to be settled within 12 months. E.g.
Those that are due to be settled after one year.
Dividends which are due and payable within 12 moths are normally shown separately under current liabilities.
Example: a company may try to improve the picture so as to inflate share price or gain beneficial loan arrangements. Alternatively, if tax was high, then possibly reducing profits so as to pay less tax. Often such adjustments are done at the year end by issuing invoices early or delaying until the next year.
The following excerpt was taken from a recent financial statement of Cummins Engine Company:
Loan agreements contain covenants which impose restrictions on the payment of dividends and distribution of stock, require maintenance of a 1.25:1 current ratio, and limit the amount of future borrowings.
Why would a creditor such as a bank impose such restrictions when making a loan?
Accounts Payable 150,000
Tax Payable 50,000
Current Prop of Loan 25,000
Total Current Liabilities 225,000
Non Current Liabilities
Bank Loan 250,000
Retained Earnings 50,000
Total Shareholders Funds 75,000
Total Liabs & Equity 550,000ABC Limited Balance Sheet as at 31st May 2006
Accounts Receivable 200,000
Bank Balance 125,000
Total Current Assets 475,000
Non Current Assets
Plant & Equipment 100,000
Less: Depreciation -50,000
Total Non Current Assets 50,000
You should each look at 2 companies and evaluate for qualitative purposes. (See end of Chapter 6) This should include the following:
Please ensure you
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