Things Will Get Better But First ......

[spunkyblonde]

frugi i agree saying thank you ..goes a long way .. ..im learning so much here at t2w ..thanks everyone

 

[naughty]

Agree with most of your summation Gerard but maybe its different rules here in AUS but i dont agree that shareholders funds are a liability...likely that statement was what confused wisestguy.

I would classify ordinary s/h funds as equity. If a business is wound up then creditors(secured have priority over unsecured creditors) get their pie first and if there's any leftover crumbs then these are what the shareholders are left with. Thats why when preference shares (a liability as the dividend acrues) are converted to shares they aren't classified as liabilities anymore but as equity. Whereas the company has NO obligation to pay anything to ordinary shareholders whilst the business is solvent and trading.

Wisestguy: assets and liabilites usually are not always the same (with exceptions of freak companies). For the balance sheet to balance... assets=liablities+equity(s/h capital etc).
Now: Assets - Liabilites=net worth of business ....As Gerard mentions this is what shareholders get if the business is wound up.

If anyone wishes to comment or correct me in anyway then i'd be happy to hear from you

N

 

[FetteredChinos]

technically speaking, the only liability on the balance sheet pertaining to shareholders is dividends still to be payable to shareholders, resulting from prior activities, and proposed dividends from current activities.

ah, the delights of FRS's and IAS's

 

[naughty]

yep agree with you there FetteredChinos. IAS is just too delightful as Aus companies are just finding out with this year being the first time they are switching to IAS in the attempt to keep up with the world (we always seem to be tagging behind the US financial market wise)

 

[frugi]

surely if the contributers wanted expressed thanks they would say so . why do you feel the need to suggest , I find this rather bizzare.

anyway that's corny . we are adults here , at least I hope so , the real thanks comes when I post more original articles as said.

So when you've done a mate a favour do you then stand there and ask them to thank you?

"Mate, this time I want expressed thanks."

Or do you simply expect them to do so naturally because you have gone out of your way to help them?

The latter, I would imagine.

Several people have written replies to your original question and obviously put some time and thought into doing so. A little gratitude wouldn't go amiss, that's all I was saying. Just cause this is an online BB doesn't mean manners have to fly out of the window.

If you post some original articles I'm sure you will receive gratitude back, whether you want it or not.

Anyway i've laboured the point enough.

 

[Sirlosealot]

Hi Naughty and FetteredChinos

I would classify ordinary s/h funds as equity. If a business is wound up then creditors(secured have priority over unsecured creditors) get their pie first and if there's any leftover crumbs then these are what the shareholders are left with. Thats why when preference shares (a liability as the dividend acrues) are converted to shares they aren't classified as liabilities anymore but as equity. Whereas the company has NO obligation to pay anything to ordinary shareholders whilst the business is solvent and trading.

In double entry book-keeping theory a liability does not cease to be a liability just because the law of the land says it can only be paid back once all other creditors have been paid back. Nor does it cease to be a liability just because it is irredeemable and perhaps interest free whilst the company is solvent and trading.

In double entry book-keeping Equity is a liability. The net worth of the business is owed to someone and this someone is the owner. The basic book-keeping entry for someone subscribing for £1,000 of £1 shares is Debit Bank £1,000 and Credit Equity/Share Capital or whatever else the Shareholders funds are called. A Debit balance on the balance sheet is an asset and a credit balance is a liability –full stop.

The fact that UK/USGAAP do not label Equity as either short or long term liability does not change the technical mathematical book-keeping principle. When all's said and done Equity is what is owed to the owners of the business and is therefore, in book-keeping terms, a liability not an asset.

technically speaking, the only liability on the balance sheet pertaining to shareholders is dividends still to be payable to shareholders, resulting from prior activities, and proposed dividends from current activities.

Dividends are a short term liability and are therefore separated out from Equity funds only when the decision is made when to pay them and they become a short term liability. Until then they are part of the Profit and Loss Reserves in Shareholders/Equity funds. UK/USGAAP and the Law insist on Liabilities due within 1 year being shown separate from longer term liabilities.

In the old days when balance sheets were balance sheets and small furry creatures etc all liabilities were shown on the right hand side. Set out like that the theory of Assets = Liabilities was much easier to grasp but made it more difficult to get a quick idea of how healthy the business was! But whatever the format of the accounts, all book-keeping (even in Oz land ) still follows the old Venitian double entry principle even if, very often nowadays, one side seems to be hidden -as in the case of the Anglo American Balance Sheet in my previous post. This double entry principle demands that every transaction has an 2 equal entries -one Debit and one Credit. In the balance sheet a Debit entry denotes an Asset and a Credit balance denotes Liability.

Hope this all doesnt sound too severe. It's not meant to but Accounting principles aren't the lightest of subjects to expound on and of course I don't want to be found guilty of not thinking that less is more . As it is I've probably blown that one already.

Cheers

Gerard

 

[wisestguy]

Agree with most of your summation Gerard but maybe its different rules here in AUS but i dont agree that shareholders funds are a liability...likely that statement was what confused wisestguy.

I would classify ordinary s/h funds as equity. If a business is wound up then creditors(secured have priority over unsecured creditors) get their pie first and if there's any leftover crumbs then these are what the shareholders are left with. Thats why when preference shares (a liability as the dividend acrues) are converted to shares they aren't classified as liabilities anymore but as equity. Whereas the company has NO obligation to pay anything to ordinary shareholders whilst the business is solvent and trading.

Wisestguy: assets and liabilites usually are not always the same (with exceptions of freak companies). For the balance sheet to balance... assets=liablities+equity(s/h capital etc).
Now: Assets - Liabilites=net worth of business ....As Gerard mentions this is what shareholders get if the business is wound up.

If anyone wishes to comment or correct me in anyway then i'd be happy to hear from you

N

actually , I was quite clear with gerard's multiple explanations , and is more than adequate for my purposes .

but if you want to get into this deeper with him , be my guest , quite interesting in a way. although of course far greater than anything I will need for trading .

 

[Canadian]

Office politics or bitchiness is common.
What I suggest you is to keep digging.
Bank managers know more than they want to tell you.

 

[naughty]

Office politics or bitchiness is common.
What I suggest you is to keep digging.
Bank managers know more than they want to tell you.

Thats right. A lot of fellow coworkers will sometimes withhold information hoping to make themselves appear more intelligent and knowledgeable. Espcially in the finance and banking environment.