Introduction and Learning Objectives of Accounting and Management
School of Accounting ACCT 1511: Accounting and Financial Management 1B Session 2, 2012
Week 5
Completing the Balance Sheet
Student Handout
Contents: 1. Learning Objectives 2. Tutorial Questions 3. Lecture Materials
Lecturer: Dr Victoria Clout Website: http://telt.unsw.edu.au
1
Introduction and Learning Objectives
In this week we are turning our attention towards the remaining major component of the balance sheet – owners’ equity. Like liabilities, owners’ equity represents another form of financing for a business. At first glance, liabilities (capital provided by creditors) and owners’ equity (capital provided by owners or shareholders) may look very different. As we delve deeper into the topic, however, you will appreciate that debt and equity are at either end of a continuum of financial instruments and that sometimes, financial instruments exhibit both debt‐ and equity‐like qualities. Further, you will note that some financing arrangements do not appear in the balance sheet at all! In our discussion of equity financing, we discuss the option of using equity as a source for resources (assets) of the corporation. Shareholders are a key source of initial finance for a company. While traditionally regarded as the owners of a company’s assets, more recent thought suggests that the shareholder exchanges their investment in a company for a right to the residual cash flows of the firm (dividends). At the end of this topic, you should be able to: LO1. Describe the components of owners’ equity LO2. Accounting for contributed equity LO3. Accounting for retained profits LO4. Accounting for reserves LO5. Describe bonus issues, share splits, and share buybacks LO6. Understand what is meant by debt/equity trade‐off
2
Required Readings
Trotman & Gibbins • Chapter 10 (pp. 467-468) • Chapter 11 (pp. 502-510)
For Week 5 Lecture
• Bring this handout and a calculator to complete the Workshop Questions.
Additional readings: • Weekes, P. Why buybacks
Week 5
Completing the Balance Sheet
Student Handout
Contents: 1. Learning Objectives 2. Tutorial Questions 3. Lecture Materials
Lecturer: Dr Victoria Clout Website: http://telt.unsw.edu.au
1
Introduction and Learning Objectives
In this week we are turning our attention towards the remaining major component of the balance sheet – owners’ equity. Like liabilities, owners’ equity represents another form of financing for a business. At first glance, liabilities (capital provided by creditors) and owners’ equity (capital provided by owners or shareholders) may look very different. As we delve deeper into the topic, however, you will appreciate that debt and equity are at either end of a continuum of financial instruments and that sometimes, financial instruments exhibit both debt‐ and equity‐like qualities. Further, you will note that some financing arrangements do not appear in the balance sheet at all! In our discussion of equity financing, we discuss the option of using equity as a source for resources (assets) of the corporation. Shareholders are a key source of initial finance for a company. While traditionally regarded as the owners of a company’s assets, more recent thought suggests that the shareholder exchanges their investment in a company for a right to the residual cash flows of the firm (dividends). At the end of this topic, you should be able to: LO1. Describe the components of owners’ equity LO2. Accounting for contributed equity LO3. Accounting for retained profits LO4. Accounting for reserves LO5. Describe bonus issues, share splits, and share buybacks LO6. Understand what is meant by debt/equity trade‐off
2
Required Readings
Trotman & Gibbins • Chapter 10 (pp. 467-468) • Chapter 11 (pp. 502-510)
For Week 5 Lecture
• Bring this handout and a calculator to complete the Workshop Questions.
Additional readings: • Weekes, P. Why buybacks