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Financial Reporting L6 10/10/17 :<3: "Recording Transactions and…
Financial Reporting L6 10/10/17 :<3: "Recording Transactions and The Balance Sheet"
The Balance Sheet
Resources = Claims (on the resources) /
A - L = OI
shows the
financial position
of the reporting entity
reflects that every transaction has two ** :no_entry:
non-current assets (long-live assets)
balance sheet value ≠ market value
timing: investors value future expectations
use of historic cost values
objective and verifiable
problem of aggregating / comparing items bought at diff times as though equivalent
sales may be matched with costs that are outdated
-> alternative valuation for certain items (controversy)
revaluations
fair values
-> why not use market values
may not always be identifiable
market value by reference to acquisition or resale amounts may not be relevant
aggregate market values of individual items ≠ total market value of equity
market values may fluctuate
have to be regularly updated
can create volatility
possible over-reaction
some things not on the balance sheet (intangibles)
the effects of accounting policy choice (relate to idea of creative accounting)