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accountancy > The Balance Sheet > Flashcards

The Balance Sheet Flashcards

1
Q

What are the five accounting things?

A
  • Assets
  • Liabilities
  • Capital or Equity
  • Income
  • Expenses
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2
Q

What are Assets?

A

What is owned and controlled and will create future benefit.

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3
Q

What are liabilities?

A

What is owed to others.

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4
Q

What is capital?

A

Investment from shareholder or owner

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5
Q

What is the income?

A

The revenue from the goods sold or services provided.

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6
Q

What are the expenses?

A

Cost of day-to-day operations of the business.

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7
Q

What of the five accounting things are shown in the balance sheet?

A

Assets, Liabilities and Capital.

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8
Q

What does the balance sheet show?

A

The financial position of a business ata certain point in-time.

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9
Q

What are Assets and Liabilities split into?

A

Non-current Assets and current assets.
Non-current Liabilities and current liabilities.

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10
Q

How is the working capital calculated?

A

Current Assets - Current Liabilities

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11
Q

What is the balance sheet important for?

A

Interpretating financial statements.

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12
Q

What are intangible assets?

A

Non-current, non-physical. For example; Goodwill, patents, trademarks, licences.

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13
Q

What are tangible assets?

A

Non-current physical assets. For example; Vehicles, buildings, machinery, equipment.

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14
Q

What is depreciation in accounting terms?

A

Expensing the cost of a non-current asset over its useful life.

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15
Q

What are the two methods of depreciation?

A
  • Straight line method
  • Reducing balance method
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16
Q

What happens in the straight line method of calculating depreciation?

A

There is an equal amount charged every year.

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17
Q

What happens in the reducing balance method of depreciation?

A

The amount decreases every year.

18
Q

How is the depreciation method decided?

A

A judgement by the managers.

19
Q

Where is the depreciation policy found?

A

In the notes of the financial statement.

20
Q

What does depreciation affect?

A

Both the profit/loss and the reported asset value.

21
Q

What is working capital?

A

Short term capital that is working day-to-day.

22
Q

How is the working capital calculated?

A

Current assets - Current Liabilities

23
Q

What are the inventories?

A

The good the business owns and hopes to sell; raw materials, Works in progress, and finished goods however some companies may only have finished goods.

24
Q

What are trade receivables (debtors)?

A

Customers (individual or a business) who have purchased goods but are still yet to pay.

25
Q

What is liquidity?

A

The ease of converting an asset into cash, the cash itself being the most liquid asset of all.

26
Q

How are trade receivables presented?

A

In reverse order of liquidity, how difficult it is to convert it into cash.

27
Q

How do bad debts come about?

A

When customers don’t pay their bills (refuse or go bankrupt)

28
Q

What do bad debts become in the IS and the balance sheet?

A

An expense in the income statement. A reduction to receivables in the balance sheet.

29
Q

How might businesses prepare for bad debts?

A

Managers may set up a provision for doubtful debts. A cushion to absorb any future bad debts.

30
Q

What is a prepayment?

A

A prepayment is owed to a business and is a current asset.

31
Q

Where are the prepayments shown in the balance sheet?

A

Within the Other current assets

32
Q

Is cash subjective?

A

Yes, for example exchange rates in foreign countries.

33
Q

What is the accounting standards definition?

A

Short-term, highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.

34
Q

What is a current liability?

A

An amount that is due to be paid within one year.

35
Q

What are different types of creditor?

A

Employee, Supplier, Bank

36
Q

What are trade payables?

A

Money that is owed for the supplies of goods and services used in day-to-day operations.

37
Q

What kind of liability is a bank loan?

A

A non-current liability.

38
Q

What are overdrafts?

A

Semi-permanent (effectively a long term loan) but the bank may request repayment at short notice.

39
Q

What are the accruals in the Balance sheet?

A

The day-to-day bills still owing at the end of the year.

40
Q

What items are deducted on the balance sheet?

A

Current liabilities

41
Q
A

accountancy (6 decks)

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