7.2a Balance Sheets

Question 1

What are balance sheets?

Answer 1

A measure of the accumulated value of the business since it began

Question 2

What can balance sheets be used to judge?

Answer 2

• The business’ worth
• Its debts
• Its sources of finance
• Changes over time

Question 3

Equity formula

Answer 3

Non-current assets + current assets - current liabilities - non-current liabilities = Equity

Question 4

Non-current assets definition

Answer 4

Assets that have been part of the business than more than a year

Question 5

Current assets definition

Answer 5

Assets that have been part of the business for less than a year

Question 6

Non-current liabilities definition

Answer 6

Liabilities that will be paid back in more than one year

Question 7

Current liabilities definition

Answer 7

Liabilities that will be paid back in less than one year.

Question 8

What is total equity?

Answer 8

The total of all the money that has been put into the business

Question 9

Share capital definition

Answer 9

Money generated by selling shares in the business

Question 10

Reserves definition

Answer 10

Profit retained by the business and put back in to improve it

Question 11

Net current assets formula

Answer 11

Net current assets = current assets - current liabilities

Question 12

Net assets formula

Answer 12

Net assets = non-current assets + net current assets - non-current liabilities

Question 13

Assets employed formula

Answer 13

Assets employed = net current assets + non-current assets

Question 14

Capital employed formula

Answer 14

Capital employed = total equity + non-current liabilities

Question 15

When are share capital and reserves included?

Answer 15

When calculating equity

Question 16

What is a disadvantage of a balance sheet?

Answer 16

It is a snapshot of one day only so many not be relevant in the future

Question 17

What is depreciation?

Answer 17

When assets lose value over time

Question 18

Working capital definition

Answer 18

The amount of cash (and assets that can be easily turned into cash) that the business have available to pay day-to-day debts

Question 19

Working capital formula

Answer 19

Working capital = current assets - current liabilities

Question 20

Reasons a business would need to hold more cash:

Answer 20

• Inflation increasing cost of wages and stock
• Long cash-flow cycle as they need to wait for money to come in
• Expanding, so needs cash to avoid overtrading

Question 21

What is allocating capital expenditure?

Answer 21

Setting aside enough money to stop current-assets from wearing out

Question 22

What is ‘net realisable value’?

Answer 22

Amount the company could get by selling the stock right now in its current state

Question 23

Reasons assets lose value:

Answer 23

• Wear and tear
• Break-down
• Old fashioned

Question 24

Why are suppliers interested in working capital and liquidity?

Answer 24

If a business is more liquid they are more likely to offer them better credit