Balance sheets

Question 1

Assets and Liabilities

Answer 1

Assets - items of value owned by the business
Liabilities - Money a business owes

Question 2

Non-current assets

Answer 2

Kept by the business for more than a year
Vehicles, Premises, Machinery

Question 3

Current assets

Answer 3

Likely to be turned into cash within a year
Inventories, Receivables, Cash and cash equivalents

Question 4

Non-current liabilities

Answer 4

Debts that the business has more than a year to repay
Bank loans and mortgages

Question 5

Current liabilities

Answer 5

Debts that the business may have to repay within a year
Overdrafts and Payables

Question 6

Order of a balance sheet

Answer 6

NON CURRENTS ASSETS
inventories
receivables
cash and cash equivalents
TOTAL CURRENT ASSETS
current liabilities
NET CURRENT LIABILITIES
non current liabilities
NET ASSETS

share capital
reserves and retained earnings
TOTAL EQUITY

Question 7

Net assets and total equity

Answer 7

should equal each other
net assets = total assets - total liabilities
total equity = share capital + reserves/retained earnings

Question 8

Net current liabilities/ working capital

Answer 8

total current assets - current liabilities

Question 9

Net current assets

Answer 9

currents assets - current liabilities

Question 10

Receivables

Answer 10

Money you’re owed by customers
- receivables will be high for any business that offers customers to buy now and pay later
- reducing time for customers to pay isn’t a solution as they may go elsewhere
- to determine if a business/ trade receivables are good, you should compare to an industry average

Question 11

Payables

Answer 11

Money you owe suppliers
- payables will be low for any business that doesn’t need many raw materials or doesn’t have trade credit
- to determine if a business’ trade payables are good, you should compare to an industry average

Question 12

Expenditure

Answer 12

• Capital expenditure = money spent on non current assets such as machinery or vehicles, on income statement (exceptional item), on balance sheet ( non current assets)
• Revenue expenditure = money used on the day to day running of the business such as raw materials and bills, on income statement ( working capital and expenses)

Question 13

Working capital

Answer 13

• the amount of cash and assets a business has available to pay day to day debts
• the more working capital the business has, the more liquid it is (able to pay short term debts)
• allows you to pay debts when they’re due even if you haven’t got your receivables yet
• if working capital is too low, a business will start to have cash flow problems ( lack of liquidity and negative cash flow), less likely to have suppliers want to pay back later (increased debt or lack of suppliers)
• if working capital is too high, then the business isn’t efficiently using its surplus cash ( could be better spent elsewhere to earn more revenue)