this is a lecture from open tuition to benefit from the lecture you should download the free lecture notes from open tuition com alright this is the second lecture on chapter two chapter two was sent to manager position of the statement of profit or loss and assuming you have watched the first lectures on this chapter and we went through that example with lots of transactions showing at each stage a statement of what the business owned and what the business owed and I said that that was effectively a statement of financial position well they was let me now show you what when I called the pretty loud the standard layout for join being Resul trader for the moment forget limited companies you'll see later the layout is almost exactly the same for a limited company but there are a couple of extra things but this is a sole trader and if you look at the next page of the chapter you've got an example of the layout which I've written out here and I think I've really done quite nicely though I mean you've got the printed one your friends of you but let me use it just to explain how we legs out nicely first of all look at the heading it's the statement of financial position and a particular date and I've sent by law they've got to do it once a year some companies might do it every month but you've got to do it once a year but their business can choose its own year and say doesn't always have to be 31st December the end of it an ordinary calendar year this business has decided to do it every 31st of March that's the company the businesses here and and anything they want I won't do to 31st December for his reasons but he could the end of January or it could be end of June whatever what pictures of livers of March are every 31st of March they would produce this statement and the layout is basically as we having my baby example in the last lecture he did use to laid out differently do things sideways and so on but the standard layout these days is to list all the assets what the business owns and then below to list on the business owes to the owner the capital and to other people in a bit more detail first of all the assets which is listing everything we own they have to be split under two headings what we call non current assets and what we call current assets now non current assets are assets we intend to keep no there's no precise rule here it's generally assets we intend to keep for more than a year so here you're just an example also very different for different businesses but they land in the buildings if we owned our buildings but I think you'd agree that we don't mean tend to keep them and not forever you know maybe come a time when you sell and you buy new buildings but certainly you would not only intend to be keeping them there for more than a year I simply blunt an equipment those are your machines planted big machines and equipment doesn't matter fixes some fittings your furniture motor vehicles cars trucks vans whatever they're all assets you intend to keep only : non current assets so we list them all and the total here is two hundred thousand the others are called current assets and these are assets that keep changing you're not not going to keep them for more than a year not the same amount but inventories you know you buy what you sell goods every day that stands to keep changing we're just showing what was left at the end of the year receivables you sell goods people owe you money they pay you they'll be less money Kelly keeps changing at the end of the year this business is only twelve thousand now jumping one cash all right we hope we will always have cash obviously but the amount keeps changing by good you spend cash sell good to receive cash well they're all current assets the one I jumped over pre payments now don't event a great detail here now because it's a topic on its own and you'll see there's a later chapter column prepayments but essentially what it is is this I pay insurance on my car but the way I pay it I thank used to say for most people and they have to pay let's say $1,200 but I have to pay for the whole year at the beginning of the year so I don't know maybe on the 1st of January I have to pay insurance of 1200 for the year from January through to December but only about the statement of the 1st of March and of March I'm not used on the insurance used three months worth but I paid right the way through to December so in a sense I've overpaid and if I close down at March but the insurance company hopefully it repay me that bit up overpaid so it's a bit like a receivable but they're not going to repay me off with 6 I'm not going to close down we call it a prepayment now percent up to fastest worrying you for the moment forget it well because I say there's a later chapter where I'll go through in detail what it is and how you can ask questions on it but apart from that there are our assets and the extra base although we must list all the assets as I was doing in the previous lecture they have to be split between those two headings non current and current now below we list what the business owes and the business again think back to the previous lecture they owe money to the owner that capital and the old money to other people liabilities now here's where the fact is to sell trades it becomes rather important because for a sole trader the amount owing to the owner just like my example the amount that was old at a start of the year remember are you finishes the rest of March had started 1st of April at the end of the year they still are burned in 30 but their mode the road is increased by the profit for the year and it reduces by anything they've taken out the drawings all the withdrawals so the end of the year they are wrote 170 but for a sole trader we have to show what they were owned at the start and separately how much profit the businesses made and separately how much they taken out the drawings so the end of the other had 170 and in fact next year we'd start next year saying go at the beginning they were at 170 and we then on next year's profit and subtract next year's drawings so nothing went on to the older and in addition we've got my abilities the amount owed to other people and again this has has to be split under two headings what we call non current liabilities and current liabilities and here was a very precise definition non current liabilities it's where is owing in more than one year current liabilities is where we owe money but it's payable in less than a year so depends how soon leave enough to pay it current liabilities well payables your trade payables they amount you on to suppliers I think you'd agree any normal situation you will be paying it within a year so it's a current liability now bank overdraft bank over tough when you have a negative balance of language and the bank can always demand that money immediately so it's purple within a year it's a current liability accruals were a bit like pre payments I don't want to get into detail here because there's a later chapter but just briefly we're in the end of March I've used electricity during March but under the bill yet there's going to be a bit but we haven't received a bill yet and yes I know I owe money I can't say I don't owe the money because we've got a bill yet if I've used electricity mm I'm gonna have to pay it whether the bill comes next month or in two months and so an accrual is where you are money for expenses we haven't yet up the bill I don't know that make sense creatively didn't don't worry too much because of the later chapter but he disappear in my ability non-current I've got there an 8% load eight percent people guess is the interest of charging me BC alone normally will be for a longer period perhaps that borrows money for five years and then we have to pay about that 25,000 in five years time I owe money it's a liability but it's not a current if it's not payable for five years he does a date you know normally in an exam if you're not given dates you would assume alone was more than a year was not a current become the situation perhaps when I borrow 25,000 but I would have to repay $5,000 to each year but if I went had to pay 5,000 of it this coming year 5,000 would be a current liability and if the other 20,000 was not payable for 2 3 4 or 5 years the other 20 that'd be a non current so you could have to split it but if it's if you're gonna repay in a year its current if you're gonna repay in more than a year it's a normal current and so the total there to 29 so the word extra from what we had before just the importance that acids we have to split between current and non-current and so it's not going first to current second and simply liabilities we have to split between non current current and again non current first current segment I've stressed several times this is for sole trader we're going to look at limited companies later but in fact a limited company statement of being exactly the same except that bit you'll see we shall slightly differently but otherwise acceptance every limited company here but cover all the detail and everything but once obviously but it is very much an overview this is what we're aiming for there's at the end of each year we need to produce this statement now before cause this lecture and look at the other statements them to profit and loss I did say I wanted to say a bit more about drawings so let me say a bit more about drawings but when I want to say is this the full definition of drawings or withdrawals it's anything the owner takes from the business before I make it clear I mean whatever he or she might call it those two things there let me explain first I want to say anything the other takes from the business usually it will be cash the owner needs money to live on and so it's likely to take out money and listens illustration to come ten thousand in my baby example in the last lecture I think it was 1200 no it will be cash but it is anything viola takes so for instance if my business is buying and selling DVDs and the business has bought some DVDs but I decide to take some of them home with me well fine that is drawings the cost of those DVDs are taking its drawing says anything they take secondly this is what some were might be tricked in the exam if another use she might call it now a lot of people with a small business problem comes my mother owns a shop she's not an accountant you know but she buys things she sells things quite happily now she needs money to live on so glad she says oh well take a hundred dollars a week for me and she says it's my wages well she might call it wages but it doesn't matter what she calls it it isn't anything the owner takes is drawings doesn't matter that she calls it wages or she might say oh I've let the business money I'll pay myself some interest doesn't matter anything the owner takes his drawings and he doesn't affect the profit but it reduces the amount the road paint money to other people you know my mother may have people working for her in the shop there's no money that's wages and it's an expense less profit but if my mother takes anything then call it whatever she wants but any money she takes his drawings and he doesn't have any profit but he does reduce the amount she's owned looking as the first of the two main statements and in fact on the next page you'll see I pay tentative terminology well I've been through all of those I'm not going to read that page to you but just have a run down by yourself and check but they're all summarized there as I say this one of the things about these chapters we get rid of an awful lot of the terminology that goes with the exam anyway again to avoid things getting too long I'll stop this lecture here but in the next lecture we'll look at the other main and statement the statement of profit or loss