I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

PART A: THE CONTEXT AND PURPOSE OF FINANCIAL REPORTING 

 

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Examples of assets are factories, office buildings, warehouses, delivery vans, lorries, plant and 

machinery, computer equipment, office furniture, cash and goods held in store awaiting sale to 

customers. 

Some assets are held and used in operations for a long time. An office building is occupied by staff for 

years. Similarly, a machine has a productive life of many years before it wears out.  

Other assets are held for only a short time. The owner of a newsagent shop, for example, has to sell 

their daily newspapers on the same day that they get them. The more quickly a business can sell the 

goods it has in store, the more profit it is likely to make; provided, of course, that the goods are sold at a 

higher price than what it cost the business to acquire them. 

6.1.2 Liabilities 

A liability is something which is owed to somebody else. 'Liabilities' is the accounting term for the debts 

of a business. The IASB's Conceptual Framework for Financial Reporting 2018 defines a liability as 

follows: 

'A 

liability

 is a present obligation of the entity to transfer economic resource as a result of past events.  

An obligation is a duty of responsibility that the entity has no practical ability to avoid.'  

(Conceptual Framework for Financial Reporting 2018, paras. 4.26 and 4.29) 

 

Examples of liabilities are amounts owed to a supplier for goods bought on credit, amounts owed to a 

bank (or other lender), a bank overdraft and amounts owed to tax authorities (eg in respect of sales tax). 

Some liabilities are due to be repaid fairly quickly (eg suppliers). Other liabilities may take some years to 

repay (eg a bank loan).