Slide 2.

Accounting For Managers

Measuring and reporting
financial position
Week 3

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.2

LEARNING OUTCOMES
You should be able to:

Explain the nature and purpose of the three

major financial statements

Prepare a simple statement of financial position

and interpret the information that it contains

Discuss the accounting conventions

underpinning the statement of financial position

Discuss the uses and limitations of the statement

of financial position for decision-making purposes

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.3

The major financial statements – an overview

Statement of cash flows

Income statement

Statement of financial position

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.4

The relationship between the major financial statement

Statement of Statement of Statement of

financial position financial position financial position

Income statement Income statement

Statement of cash Statement of cash

flows flows

Period 1 Period 2 Time

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.5

Identifying an asset for inclusion in the statement of financial

position
Does the resource provide a right for the potential No
to receive economic benefits?

Yes

Is this right identical to that available to other

parties at no great cost? Yes

No

Can the business exert control over the resource as a No

result of a past transaction or event?

Yes

Can the resource be measured in financial terms

No
with a reasonable degree of certainty?

Yes

Not an
Accounting
accounting
asset
asset

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.6

Claims

Equity

Liabilities

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.7

The accounting equation

Assets = Equity + Liabilities

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.8

The effect of trading transactions on the accounting

equation

The accounting equation can be extended as follows:

Profit
Assets = Equity + (-) (Loss) + Liabilities

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.9

The classification of assets

The classification of assets

may vary according to the
nature of the business:

Current assets

Non-current assets

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.10

Current assets

Held for sale or consumption during

the business’s operating cycle

Expected to be sold within

the next year

Held principally for trading

They are cash or near

equivalents to cash

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.11

The circulating nature of current assets

Inventories
(stock)

Trade
Cash receivables
(trade debtors)

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.12

Non-current assets

Do not meet the definition of

current assets

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.13

The classification of claims

Current liabilities

Non-current liabilities

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.14

Current liabilities

Expected to be settled within the

business’s normal operating cycle

Held principally for trading

purposes

Due to be settled within a year after

the statement of financial position
date

No right to defer settlement beyond

a year after the statement of
financial position date

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.15

Non-current liabilities

Do not meet the definition of

current liabilities

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.16

Layouts for the statement of financial position

Standard Non-current Alternative Non-current

layout assets layout assets
plus plus
Current
Current
assets
assets
equals equals
Total Total
assets assets
minus
Equity
plus Non-current
liabilities
Non-current plus
liabilities
plus Current
Current liabilities
liabilities
equals equals
Equity +
liabilities Equity

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.17

Brie Manufacturing
Statement of financial position as at 31 December 2018
£000
ASSETS
Non-current assets
Property 45
Plant and equipment 30
Motor vans 19
94
Current assets
Inventories 23
Trade receivables 18
Cash at bank 12
53
Total assets 147

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.18

Brie Manufacturing
Statement of financial position as at 31 December 2018
(continued)
£000
EQUITY AND LIABILITIES
Equity 60
Non-current liabilities
Long-term borrowings 50
Current liabilities
Trade payables 37
Total equity and liabilities 147

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.19

The equation for the non-standard layout

Non- Current Non-

+ Current
current assets
- liabilities - current = Equity
assets liabilities

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.20

Accounting conventions influencing the statement of

financial position

Business Statement Dual

entity of financial aspect
convention position convention

Historic Going
Prudence
cost concern
convention
convention convention

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.21

Money measurement

Key measurement problems:

Goodwill and brands

Human resources

Monetary stability

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014
Slide 2.22

Uses of the statement of financial position

Shows how the business is financed

and how funds are deployed

Can provide a basis for assessing

the value of the business

Relationships between assets and

claims can be assessed

Performance can be better assessed

McLaney and Atrill, Accounting and Finance, 7th edition © Pearson Education Limited 2014