ATAR Notes: Forum
VCE Stuff => VCE Business Studies => VCE Subjects + Help => VCE Accounting => Topic started by: elaine on May 17, 2008, 05:13:42 pm
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I know that Financing activities are "activities that change the financial structure of the business", but how exactly do drawings and capital contributions do that? Won't expenses and revenues do that too?
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Drawings and capital alter the financial structure because they help to determine the residual interest in the assets of the firm after the deduction of liabilities, or what the business owes the owner. The financial structure refers the who makes a claim to what of the businesses assets. Liabilities (eg. loan) are the claim of those entities on the assets of the business.
So any capital contribution and drawings alter the level that the business owner can claim on the assets of the firm.
This is also why say a loan would be financing.
Expenses and revenues are related to the day to day operations of the business and thus have to be reported as Operating activities.
I wouldn't stress too much about this kinda stuff
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Liabilities (eg. loan) are the claim of those entities on the assets of the business.
Liabilities are the claim of creditors on the assets of the business.
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Financing activities deal with the activities that alter the financial framework of the business. Revenues and expenses will not change the financial framework of the business. :)
some revenues and expenses are not even cash! :P