What are financial instruments on the balance sheet? (2024)

What are financial instruments on the balance sheet?

Financial instruments recognized in the balance sheet include cash and cash equivalents, securities, other financial receivables, trade receivables, trade payables, loans and derivatives. Current investments and derivatives are recognized on the trade date.

Common examples of financial instruments include stocks, exchange-traded funds (ETFs), mutual funds, real estate investment trusts (REITs), bonds, derivatives contracts (such as options, futures, and swaps), checks, certificates of deposit (CDs), bank deposits, and loans.

A financial instrument will be a financial liability, as opposed to being an equity instrument, where it contains an obligation to repay. Financial liabilities are then classified and accounted for as either fair value through profit or loss (FVTPL) or at amortised cost.

Financial instruments are contracts for monetary assets that can be purchased, traded, created, modified, or settled for. In terms of contracts, there is a contractual obligation between involved parties during a financial instrument transaction.

The following are examples of items that are not financial instruments: intangible assets, inventories, right-of-use assets, prepaid expenses, deferred revenue, warranty obligations (IAS 32. AG10-AG11), and gold (IFRS 9.

Financial instruments are classified as financial assets or as other financial instruments. Financial assets are financial claims (e.g., currency, deposits, and securities) that have demonstrable value.

(b) a financial instrument that gives the holder the right to put it back to the issuer for cash or another financial asset (a 'puttable instrument') is a financial liability, except for those instruments classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D.

Goodwill is recorded as an intangible asset on the acquiring company's balance sheet under the long-term assets account. Goodwill is considered an intangible (or non-current) asset because it is not a physical asset like buildings or equipment.

Types of Financial Instruments

Stocks are equity instruments. Debt instruments represent an obligation to pay interest. Bonds, mortgages, and loan agreements are debt instruments.

Is fixed deposit a financial instrument?

A fixed deposit is a financial instrument offered by financial institutions that promise a guaranteed rate of return to the investor for a fixed tenure. Ranging from 7 days to 10 years, the investors have the option to choose the tenure based on their financial goals and liquidity needs.

For the policyholder, an insurance policy is a contract with the insurance company. It involves ownership. Insurance policies also have a specified value. Thus, while most insurance policies are not securities per se, they can possibly be viewed as an alternative type of financial instrument.

In this example, the note receivable is the financial instrument in a related party transaction for which initial measurement must be determined.

A Credit Card is a financial instrument that allows you to avail of credit on all your financial transactions. In simple terms, a Credit Card is a debt instrument that allows you to buy things now and pay for it later.

Deferred revenue and prepaid expenses generally are not financial instruments. A derivative is a financial instrument that changes in value in response to an underlying share, interest rate etc.

Mutual Funds are financial instruments. These funds are collective investments which gather money from different investors to invest in stocks, short-term money market financial instruments, bonds and other securities and distribute the proceeds as dividends.

Prepayments or advances for the receipt or provision of goods or services are not financial instruments. An entity develops its own accounting policies using the principles in Standards of GRAP that deal with similar issues or the Framework for the Preparation and Presentation of Financial Statements.

financial asset

a contractual claim to something of value; modern economies have four main types of financial assets: bank deposits, stocks, bonds, and loans.

Debt Instruments are mainly debentures and bonds, while equity instruments are shares. Shares can be of different types: Equity shares, preference shares and deferred shares. The dividend is the profit distributed among its shareholders.

A financial instrument is defined as a contract between individuals/parties that holds a monetary value. They can either be created, traded, settled, or modified as per the involved parties' requirement.

What are the most common types of financial instruments?

Financial instruments refer to contracts or documents representing financial assets, such as bonds, shares, and derivatives, which transfer obligations or risks between organizations. They can take various forms, such as debentures, bonds, cash equivalents, equity shares, swaps, etc.

Treasury Bills, Notes and Bonds

U.S. Treasury securities are considered to be about the safest investments on earth. That's because they are backed by the full faith and credit of the U.S. government. Government bonds offer fixed terms and fixed interest rates.

An instrument is a liability when the issuer is or can be required to deliver either cash or another financial asset to the holder. This is the critical feature that distinguishes a liability from equity. An instrument is classified as equity when it represents a residual interest in the net assets of the issuer.

Initial measurement of financial instruments

Under IFRS 9 all financial instruments are initially measured at fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs.

Cash, stocks, bonds, mutual funds, and bank deposits are all are examples of financial assets. Unlike land, property, commodities, or other tangible physical assets, financial assets do not necessarily have inherent physical worth or even a physical form.