Chapter two

Question 1

What financial statements do i need to be aware of?

Answer 1

1. Statement of financial position
2. Income statement
3. Statement of cash flows

Question 2

What is the income statement also known as ?

Answer 2

the profit and loss account

Question 3

What is the statement of financial positon also known as ?

Answer 3

the balance sheet

Question 4

What are trade payables ?

Answer 4

Trade payables are things that the business owes

Question 5

What are trade receivables ?

Answer 5

Trade receivables are things which are owed to the business from customers etx.

Question 6

What are tangible assets?

Answer 6

Assets with a physical substance

Question 7

What are intangible assets ?

Answer 7

Assets which don’t have physical substance e.g. goodwill , brand

Question 8

What is equity ?

Answer 8

Equity is the owners claim to the business

Question 9

What is the equation:

Assets = …+…

Answer 9

Assets = equity + liabilities

Question 10

Equity = …-…

Answer 10

Equity = Assets - liabilities

Question 11

What conventions do i need to know ?

Answer 11

Business entity convention 
Historic cost convention 
Prudence 
going concern
Dual aspect

Question 12

What is the business entity convention?

Answer 12

This law states that for accounting purposes the business and it’s owners are treated as being quite separate and distinct.

Question 13

What is the historic cost convention?

Answer 13

This law states that the values of assets shown on the statement of financial position should be based on their historic cost. (acquisition cost)

Question 14

What is the prudence convention?

Answer 14

The prudence convention states that caution should be practised when preparing financial statements

Question 15

What is the going concern convention?

Answer 15

The financial statements should be prepared on the assumption that the business is going to continue operations for the foreseeable future, unless there is evidence to the contrary

Question 16

What is the dual aspect convention?

Answer 16

This states that each transaction has two aspects, both of which will affect the statement of financial position

Question 17

What does goodwill mean ?

Answer 17

This covers the quality of the products, the skill of the employees and the relationship with customers

Question 18

What happens to non-current assets with finite lives ?

Answer 18

The assets will be used up over time and therefore the business has to use depreciation

Question 19

What do you call depreciation for intangible non-current assets ?

Answer 19

Amortisation

Question 20

What is the carrying amount ? (net book value/ written down value)

Answer 20

This is the cost of the assets less the total depreciation to date

Question 21

Are non-current intangible assets subject to depreciation?

Answer 21

no

Question 22

What is impairment loss?

Answer 22

This is the amount at which an asset is reduced due to a significant fall in value.

Question 23

What is the impairement loss listed as in the financial statement ?

Answer 23

The carrying amount on the financial statement is reduced to the recoverable amount