Balance Sheet

Question 1

What is the main purpose of a balance sheet?
A. To record the income and expenses over a year
B. To show the financial position of the business at a specific point in time
C. To list all transactions during an accounting period
D. To calculate tax liability

Answer 1

B. To show the financial position of the business at a specific point in time
Explanation: A balance sheet provides a snapshot of the business’s financial health as of a specific date, showing what it owns and owes.

Question 2

Which of the following would appear in the bottom half of a balance sheet?
A. Fixed assets
B. Cash in hand
C. Accruals
D. Retained profits

Answer 2

D. Retained profits
Explanation: Retained profits are part of the business’s capital and are shown in the bottom section of the balance sheet.

Question 3

A business owns a delivery van (originally £30,000) which has depreciated by £10,000. How will this appear on the balance sheet?
A. As a current asset of £30,000
B. As a liability of £10,000
C. As a fixed asset of £20,000 (net book value)
D. As capital of £30,000

Answer 3

C. As a fixed asset of £20,000 (net book value)
Explanation: Fixed assets are recorded at their net book value after deducting accumulated depreciation.

Question 4

A company has current assets of £100,000 and current liabilities of £60,000. What are its net current assets?
A. £40,000
B. £60,000
C. £160,000
D. £0

Answer 4

A. £40,000
Explanation: Net current assets = Current assets – Current liabilities = £100,000 – £60,000 = £40,000.

Question 5

Which of the following would not appear on a balance sheet?
A. Wages
B. Motor Vehicles
C. Bank Loan
D. Debtors

Answer 5

A. Wages
Explanation: Wages are an expense and are recorded on the profit and loss account, not the balance sheet.

Question 6

Which equation must always balance in a balance sheet?
A. Income = Expenses + Drawings
B. Assets = Liabilities
C. Capital = Income – Expenses
D. Assets – Liabilities = Capital

Answer 6

D. Assets – Liabilities = Capital
Explanation: This is the fundamental accounting equation underpinning the balance sheet.

Question 7

A business has: fixed assets of £500,000 (net book), current assets of £80,000, current liabilities of £30,000, and a bank loan of £50,000. What is the net asset value?
A. £560,000
B. £600,000
C. £550,000
D. £500,000

Answer 7

D. £500,000
Explanation: Net current assets = £80,000 – £30,000 = £50,000
Net assets = £500,000 + £50,000 – £50,000 = £500,000

Question 8

Which of the following is a current liability?
A. Trade Creditor
B. Plant and machinery
C. Retained profits
D. Trade Debtor

Answer 8

A. Trade Creditor
Explanation: A trade creditor is someone the business owes money to within the short term, making it a current liability.