Claims Against the Assets

Claims Against the Assets

• Balance Sheets show us what the company owns, and what it owes.

• But who has the rights to the assets?

• Remember, assets are anything worth value to the company…this is not necessarily OWNED by you.

• Creditors have a claim on the assets.

• Assets = $49, 121

• Liabilities = $14,956 (What are these again?)

• This means that the business owner provided the difference, and the $14,956 was provided by other sources.

• The $34,156 is the Owner’s CLAIM AGAINST THE ASSETS.

Creditor’s Claims first

• Businesses close down all the time. Who gets the assets when they do?

• The short answer? EVERYONE.

• The creditors and the owner still own all the assets.

• Since creditors are owed money first, any losses from the sale of the assets are taken by the owner.

• Hopefully, the owner is able to sell everything for what it is valued. BUT…

• …this rarely happens.

• The creditor’s claims do not change.

Accounting Standards

• Do you remember GAAP and IFRS?

• They stand for:

• Generally Accepted Accounting Principles and International Financial Reporting Standards.

• Other names you need to know.

• Accounting Standards Board (AcSB) and International Accounting Standards Board (IASB)

• Companies had to start moving to the new IFRS by January 1, 2011, but this only applied to publically-traded companies.

• Private companies have a separate set of rules called the Accounting Standards for Private Enterprise (ASPE).

Business Entity Concept

• Business and personal finances are kept COMPLETELY separate.

• All we know about the ownerof this company is that she hasa claim of $34,165 on the assets.

• She is not allowed to use thebusinesses money for herself.

• She is not allowed to use her own money for the business.

• You must know these to be an accountant. VERY IMPORTANT!!!

• Here are the main 3.