Balance Sheet 1

Question 1

what questions can the balance sheet answer

Answer 1

what is the risk associated with the organisation and does the organisation have sufficient cash

Question 2

what accounting things are owned

Answer 2

assets and expenses

Question 3

what accounting things are owed

Answer 3

liabilities, income and capital

Question 4

what are assets

Answer 4

what is owned and controlled and will create future benefit

Question 5

what are liabilities

Answer 5

what is owed to others

Question 6

what is capital

Answer 6

investment from shareholder or owner

Question 7

what is income

Answer 7

revenue from goods sold or services supplied

Question 8

what are expenses

Answer 8

costs of day to day operations

Question 9

how can the income statement be summarised

Answer 9

income - expenses = profit/loss
financial performance over a period of time - movie

Question 10

how can the balance sheet be summarised

Answer 10

assets = liabilities + capital
financial position at a point in time - photograph

Question 11

non-current

Answer 11

long term - more than one year

Question 12

current

Answer 12

short term - less than one year

Question 13

how do you calculate the top half of the balance sheet

Answer 13

total assets less current liabilities
non-current assets + current assets - current liabilities

Question 14

how do you calculate the bottom half of the balance sheet

Answer 14

capital employed = shareholders equity + non-current liabilities
(shareholders equity = share capital + reserves)

Question 15

is the balance sheet a good overview of the business

Answer 15

it is a narrow view of the business because many balances are constantly changing

Question 16

how is the accounting equation for the balance sheet arranged

Answer 16

assets = liabilities + capital

Question 17

what are non current assets

Answer 17

(fixed) assets which are bought and used for several years

Question 18

what are the three types of non current assets

Answer 18

intangible, tangible and investments

Question 19

intangible

Answer 19

not physical
eg goodwill, trademarkst

Question 20

tangible

Answer 20

physical
buildings, equipment

Question 21

investments

Answer 21

shares in another company

Question 22

what is depreciation

Answer 22

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

Question 23

what are the two methods of depreciation

Answer 23

straight line and reducing balance

Question 24

how is the depreciation reported using the straight line method

Answer 24

annual depreciation expense = (cost of asset - residual value) / life of asset

Question 25

how is the depreciation reported using the reducing balance method

Answer 25

annual depreciation expense = % x net book value

Question 26

what is ammortisation

Answer 26

depreciation as applied to intangible assets

Question 27

what is working capital

Answer 27

short term capital that is working day to day
WC = current assets - current liabilities

Question 28

what are inventories and what are the three types

Answer 28

(stocks) goods that the business owns and hopes to sell
raw materials, work in progress, finished goods

Question 29

how do you value inventories

Answer 29

lower of cost or net realisable value
(cost = cost of purchase/production)
(nrv = sales price - additional costs)

Question 30

what are trade receivables

Answer 30

(debtors) customers who have purchased goods but are still yet to pay - on credit (still owe money)

Question 31

how are current assets presented in the balance sheet

Answer 31

in reverse order of liquidity - most to least difficult to convert into cash

Question 32

what are bad debts and how do they present on financial statements

Answer 32

customers who will not pay
expense in the income statement (reduced profits)
reduction to receivables in balance sheet (lower assets)

Question 33

what is provision for doubtful debts

Answer 33

a buffer that would hopefully absorb any bad debts, only an estimate (%) usually based on past experience

Question 34

what are prepayments

Answer 34

something owed to the business reported under other current assets
they are deducted from the current years income statement expenses but reported in the income statement of the relevant period

Question 35

what is cash

Answer 35

physical cash and bank deposits

Question 36

what are cash equivalents

Answer 36

short term highly liquid investments that are readily convertible to a known amount of cash, subject to low risk or changes in value eg money in a deposit account with less than three months to withdraw

Question 37

what are current liabilities

Answer 37

amount of money owed to others (creditors) due to be paid within one year

Question 38

what are four types of current liabilities

Answer 38

trade payables, bank loans, overdrafts, accruals

Question 39

what are trade payables

Answer 39

money owed for supplies of goods or services used day to day

Question 40

what are bank loans

Answer 40

only short term loans are considered current

Question 41

what are overdrafts

Answer 41

semi-permanent loans, but the bank could request repayment at short notice

Question 42

what are accruals

Answer 42

day to day bills still owing at the end of the year