Financial Assets and Financial Liabilities — full notes
Paper No. 1: Financial Accounting · Accounting for Assets and Liabilities - Financial Assets/Liabilities
Financial Assets and Financial Liabilities
1. Financial asset - definition
Cash, or a contractual right to receive cash (or another financial asset) from another entity, or an equity investment in another entity.
2. Financial liability - definition
A contractual obligation to deliver cash (or another financial asset) to another entity.
3. Common examples
| Financial assets | Financial liabilities |
|---|---|
| Cash and bank balances | Bank overdraft |
| Trade receivables | Trade payables |
| Loans given to others | Loans and borrowings |
| Investments in another company's shares | Bonds or debentures issued |
| Investments in bonds/debentures of another entity |
4. Classification: current vs non-current
Anything expected to be realised (assets) or settled (liabilities) within 12 months of the reporting date is current; anything longer-term is non-current.
Example: a loan receivable due in 18 months, and trade receivables due in 30 days. The trade receivables are current; the loan receivable is non-current, until it is within 12 months of maturity.
5. What is deliberately not covered here
How financial assets and liabilities are actually measured - amortised cost vs fair value, and the conditions determining which applies - is a real topic, just not this one. It sits in Intermediate level's Financial Reporting and Analysis paper, once the foundation of definitions and classification here is in place.