4b:Statement of financial position/ balance sheets Flashcards
(21 cards)
What is the definition of a Statement of Financial Position (SFP)?
A statement of the financial position of the business at a specific point in time (usually the end of the financial period).
What is the purpose of an SFP?
To show the financial assets, liabilities, and equity of a business at a particular point in time.
What does the accounting equation state?
Total assets = Total liabilities (including capital).
What components make up the accounting equation?
NCA (non-current assets), CA (current assets), C (capital), NCL (non-current liabilities), CL (current liabilities).
What does the term ‘working capital’ refer to?
Net current assets, calculated as (CA – CL), representing short-term net liquid assets
How are liabilities and shareholders’ equity presented in an SFP?
Liabilities are shown in brackets as they are deductions from assets, while equity is the claim of the owners on the business.
What are non-current assets (NCA)?
Long-term resources such as tangible assets (like land and equipment) and intangible assets (such as goodwill).
What are current assets?
Assets that will be held by the business for less than one year including amounts owed to suppliers
What are non-current liabilities?
Amounts that are due to be paid after a year including long term loans
What are current liabilities (CL)?
Obligations that a company is expected to settle within one year, such as trade payables and short-term loans.
What does net assets equal?
Total shareholders’ funds (equity). It represents the total assets minus total liabilities.
Why must the totals of an SFP always equal?
Because every £1 worth of resources (assets) has been paid-for by someone, either the owners (capital/equity) or third parties (liabilities)
What does Share Capital represent in an SFP?
Share Capital reflects the amount invested by shareholders in exchange for equity in the company, often listed under equity.
What does the term ‘intangible assets’ encompass?
Intangible assets can include goodwill, brands, and intellectual property rights that do not have physical substance.
How are ‘receivables’ defined in an SFP?
Receivables refer to amounts owed by credit customers to the business, included as current assets.
What is the significance of the ‘Book Value’ in the context of the SFP?
It represents the value of the company’s equity or net assets as recorded in the financial statements, which may differ from market value.
How is solvency assessed using the SFP?
Solvency can be assessed by analyzing net current assets (working capital) and total assets in relation to total liabilities.
Why is the SFP referred to as a ‘moment in time’?
Because it provides a snapshot of the company’s financial status at a specific date rather than over a financial period.
What is operating profit?
profit arrived after all operating expenses have been charged
What is retained profit?
Profit that remains after taxation and dividends have been deducted
What is shareholder’s equity?
Is the share capital and reserves of the company
