Capital and net current assets

Question 1

Capital:
An enterprise requires resources to set it up.
The money to purchase assets usually comes from where?

Answer 1

The money to purchase assets usually comes from the owner’s funds

Question 2

Capital:
An enterprise requires resources to set it up.
The money to purchase assets usually comes from the owner’s funds.
The enterprise may require additional capital in the form of what?

Answer 2

The enterprise may require additional capital in the form of a business loan

Question 3

Capital:
An enterprise requires resources to set it up.
The money to purchase assets usually comes from the owner’s funds.
The enterprise may require additional capital in the form of a business loan.
Retained profit can later be used as …

Answer 3

Retained profit can later be used as capital to grow the business

Question 4

What are the types of capital?

Answer 4

The types of capital are:
1) Money invested in the enterprise by the owner (owner’s capital)
2) Business loan
3) Retained profit

Question 5

Capital is the amount of money put into an enterprise by the owner to start up the business so that it can begin trading.
What is the net current assets total?

Answer 5

The net current assets total is the working capital of the business once it is established

Question 6

Current assets must always be what?

Answer 6

Current assets must always be greater than current liabilities

Question 7

Current assets must always be greater than current liabilities.
What is the difference in value between the two?

Answer 7

The difference in value between the two is the enterprise’s net current assets

Question 8

Calculating net current assets:
What is the formula for net current assets?

Answer 8

The formula for net current assets is:
Net current assets = Current assets - Current liabilities

Question 9

If the net current assets total is positive (+), the enterprise …

Answer 9

If the net current assets total is positive (+), the enterprise has money to pay its short-term debts (current liabilities)

Question 10

If the net current assets total is negative (-), the enterprise …

Answer 10

If the net current assets total is negative (-), the enterprise does not have the money to pay its current liabilities

Question 11

If the net current assets total is negative (-), the enterprise does not have the money to pay its current liabilities.
What could this result in?

Answer 11

This could result in financial difficulties

Question 12

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect what?

Answer 12

The level of an enterprise’s net current assets will reflect:
1) Its methods of doing business
2) What it sells

Question 13

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect its methods of doing business and what it sells.

1) Some enterprises need to …

Answer 13

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts

Question 14

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect its methods of doing business and what it sells.

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts, which will be …

Answer 14

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts, which will be reflected in their current assets

Question 15

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect its methods of doing business and what it sells.

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts, which will be reflected in their current assets
2) Enterprises that only deal in …

Answer 15

2) Enterprises that only deal in cash sales will have few debtors (trade receivables)

Question 16

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect its methods of doing business and what it sells.

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts, which will be reflected in their current assets
2) Enterprises that only deal in cash sales will have few debtors (trade receivables), which will be …

Answer 16

2) Enterprises that only deal in cash sales will have few debtors (trade receivables), which will be reflected in their current liabilities

Question 17

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect its methods of doing business and what it sells.

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts, which will be reflected in their current assets
2) Enterprises that only deal in cash sales will have few debtors (trade receivables), which will be reflected in their current liabilities
3) A small enterprise may …

Answer 17

3) A small enterprise may have to pay suppliers straight away

Question 18

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect its methods of doing business and what it sells.

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts, which will be reflected in their current assets
2) Enterprises that only deal in cash sales will have few debtors (trade receivables), which will be reflected in their current liabilities
3) A small enterprise may have to pay suppliers straight away, whereas …

Answer 18

3) A small enterprise may have to pay suppliers straight away, whereas a large enterprise may be able to negotiate favourable trade credit terms with its suppliers

Question 19

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect its methods of doing business and what it sells.

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts, which will be reflected in their current assets
2) Enterprises that only deal in cash sales will have few debtors (trade receivables), which will be reflected in their current liabilities
3) A small enterprise may have to pay suppliers straight away, whereas a large enterprise may be able to negotiate favourable trade credit terms with its suppliers, so that it …

Answer 19

3) A small enterprise may have to pay suppliers straight away, whereas a large enterprise may be able to negotiate favourable trade credit terms with its suppliers, so that it doesn’t have to pay for supplies immediately

Question 20

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect its methods of doing business and what it sells.

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts, which will be reflected in their current assets
2) Enterprises that only deal in cash sales will have few debtors (trade receivables), which will be reflected in their current liabilities
3) A small enterprise may have to pay suppliers straight away, whereas a large enterprise may be able to negotiate favourable trade credit terms with its suppliers, so that it doesn’t have to pay for supplies immediately
4) Some enterprises …

Answer 20

4) Some enterprises operate in markets where there is a seasonal demand for their products

Question 21

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect its methods of doing business and what it sells.

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts, which will be reflected in their current assets
2) Enterprises that only deal in cash sales will have few debtors (trade receivables), which will be reflected in their current liabilities
3) A small enterprise may have to pay suppliers straight away, whereas a large enterprise may be able to negotiate favourable trade credit terms with its suppliers, so that it doesn’t have to pay for supplies immediately
4) Some enterprises operate in markets where there is a seasonal demand for their products, which means that they …

Answer 21

4) Some enterprises operate in markets where there is a seasonal demand for their products, which means that they purchase more stock at certain times of the year

Question 22

Factors affecting the level of net current assets:
The level of an enterprise’s net current assets will reflect its methods of doing business and what it sells.

1) Some enterprises need to hold stocks (inventory), such as finished goods or spare parts, which will be reflected in their current assets
2) Enterprises that only deal in cash sales will have few debtors (trade receivables), which will be reflected in their current liabilities
3) A small enterprise may have to pay suppliers straight away, whereas a large enterprise may be able to negotiate favourable trade credit terms with its suppliers, so that it doesn’t have to pay for supplies immediately
4) Some enterprises operate in markets where there is a seasonal demand for their products, which means that they purchase more stock at certain times of the year.
What will this be reflected in?

Answer 22

This will be reflected in the level of their:
1) Current assets (stocks and debtors)
2) Current liabilities (creditors)