Theme 3 Topic 13 - Financial Statements

Question 1

Define Statement of Comprehensive Income

Answer 1

A financial statement showing the income and expenditure (therefore profit or loss) of a business over a period of time (usually a year)

Question 2

What are three purposes of the Statement of Comprehensive Income?

Answer 2

Evaluate performance in comparison with profit objectives, Show potential investors that the firm is able to repay loans, Enables judgments about profit quality and utilisation

Question 3

Define Revenue

Answer 3

Money received from selling goods and services

Question 4

Define Cost of Sales

Answer 4

Direct production costs of the business e.g. raw materials or labour

Question 5

Define Gross Profit

Answer 5

Revenue minus cost of sales

Question 6

Define Selling Expenses

Answer 6

Indirect costs linked to selling of the product e.g. advertising

Question 7

Define Admin Expenses

Answer 7

General overheads e.g. salaries or IT

Question 8

Define Operating Profit

Answer 8

Gross profit minus other operating expenses

Question 9

Define Finance Costs

Answer 9

Interest paid on any loan

Question 10

Define Profit for the Year

Answer 10

Operating profit minus finance costs

Question 11

Define Profit for the Year (Net Profit) After Taxation

Answer 11

Profit left after taxation, Represents profit available which can be reinvested/given to shareholders

Question 12

Gross Profit =

Answer 12

Revenue - Cost of Sales

Question 13

Gross Profit Margin =

Answer 13

Gross Profit/Revenue x 100

Question 14

Operating Profit =

Answer 14

Gross Profit - Other Operating Expenses

Question 15

Operating Profit Margin =

Answer 15

Operating Profit/Revenue x 100

Question 16

Net Profit =

Answer 16

Operating Profit - Finance Costs

Question 17

Net Profit Margin =

Answer 17

Net Profit/Revenue x 100

Question 18

Define Statement of Financial Position

Answer 18

A document describing the financial position of a business at a particular point in time, by comparing the assets and liabilities of a business

Question 19

What are the two types of asset?

Answer 19

Non-Current Asset and Current Asset

Question 20

Define Non-Current Asset

Answer 20

These last for more than 12 months

Question 21

What are four examples of non-current assets?

Answer 21

Buildings, vehicles, land, machinery

Question 22

Define Tangible Non-Current Assets

Answer 22

Non-current assets which exist physically, They depreciate in value over time e.g. a computer network or building

Question 23

Define Intangible Non-Current Assets

Answer 23

Do not have a physical presence but are of value to the business e.g. brand name or patent

Question 24

Define Current Assets

Answer 24

These last for less than 12 months

Question 25

What are three examples of current assets?

Answer 25

Inventories, Receivables, Cash

Question 26

What are the two types of liabilities?

Answer 26

Non-Current Liability and Current Liability

Question 27

Define Non-Current Liabilities

Answer 27

Debts due for repayment that last for more than 12 months

Question 28

Define Current Liabilities

Answer 28

Debts to be paid back within less than 12 months

Question 29

What are two examples of non-current liabilities?

Answer 29

Mortgage, Bank loan

Question 30

What are two examples of current liabilities?

Answer 30

Payables, Bank overdraft

Question 31

Define Total Equity

Answer 31

Funds provided by shareholders to set up the business, to fund expansion and to purchase fixed assets

Question 32

What are the two forms of equity capital?

Answer 32

Share capital and Reserves

Question 33

Define Share Capital

Answer 33

The fund provided by shareholders through the purchase of shares

Question 34

Define Reserves and Retained Earnings

Answer 34

Reinvested profit which has not been distributed to the shareholders as dividends

Question 35

Define Payables

Answer 35

Money a business owes

Question 36

Define Receivables

Answer 36

Money owed to a business by customers

Question 37

Define Working Capital

Answer 37

Day to day finance

Question 38

Working Capital =

Answer 38

Current Assets - Current Liabilities

Question 39

Total Assets =

Answer 39

Non-Current Assets + Current Assets

Question 40

Total Liabilities =

Answer 40

Non-Current Liabilities + Current Liabilities

Question 41

Net Assets =

Answer 41

All Assets - All Liabilities

Question 42

Define High Quality Profit

Answer 42

Likely to continue into the future, Comes from genuine business growth and the increase in sales

Question 43

Define Low Quality Profit

Answer 43

Arise from exceptional or extraordinary items e.g. sale of assets

Question 44

Define Exceptional Items

Answer 44

Large and one off transactions arising from ordinary trading, So large they distort the accounts

Question 45

Define Extraordinary Items

Answer 45

Large and one of transactions arising from unusual trading e.g. natural disaster