financial statements

Question 1

purpose of an income statement

Answer 1

This section of an income statement compares the value of sales generated with the value of the sales at cost price (purchase price paid to suppliers

Question 2

Sales/Sales Revenue/Turnover

Answer 2

the total amount of money generated from selling products to customers over a given period

Question 3

Purchases

Answer 3

items purchases from a supplier

Question 4

Returns Inwards

Answer 4

sales items returned by customers

Question 5

Returns outwards

Answer 5

purchase items returned to the supplier

Question 6

Carriage inwards

Answer 6

delivery charges a business incurs when bring the supplies to the store/business

Question 7

Inventory at the start

Answer 7

how much stock the business had at the beginning of the trading period

Question 8

Inventory at the end

Answer 8

how much stock the business had at the end of the trading period

Question 9

purpose of position of financial

Answer 9

A business prepares a Statement of financial position to:
* calculate the net worth of the business;
* Provide assurances that it has enough assets to covered its debts when looking acquire finance from
* Investors
* financial intermediaries e.g. banks and suppliers;

Question 10

features of financial statement

Answer 10

Non-current Asset (Fixed)
Current Assets
Current Liabilities
Net Current Assets
Net Asset
Issued Share Capital
Shareholders’ Funds
Non-Current Liabilities

Question 11

non-current asset

Answer 11

Items of value owned by the organisation that will generate income. Without these assets the organisation would not be able to operate. These assets will probably be retained by theorganisation for several years (long-term assets)

Question 12

current assets

Answer 12

Items owned by the organisation that will be used up, sold or converted into cash within 12 months. They include inventory, trade receivables, cash and cash equivalents.

Question 13

current liabilties

Answer 13

Debts owed to other organisations that must be repaid in the short-term (less than 12 months). They include trade payables (trade credit), dividends due to shareholders and taxation owed to government.

Question 14

net current assets

Answer 14

**Total current assets – total current liabilities.
**
The value of the current assets should always be greater than the value of current liabilities or the business will encounter cash flow problems and the forced to sell their non-current assets to pay short-term debt.

Without non-current assets the business would probably be unable to continue to operate.

Question 15

net assets

Answer 15

Non-current assets + net current assets.

This showsthe net value of the business once short-term debts have been repaid.

Question 16

issued share capital

Answer 16

Money invested in the organisation by the owners or shareholders. In return for their investment they will receive a dividend payment (share of the profits) in proportion to the amount of share they hold.

Question 17

shareholders funds

Answer 17

The total of all issued share capital (equity), all reserves and any retained profits (retained earnings).

Question 18

non-current liabilities

Answer 18

Debentures (long-term loans) or mortgages where the debt repayment will be over a number of years.

Question 19

who uses financial information?

Answer 19

Many groups of people are interested in the published accounts of a company. The information they provide may influence future decisions. For example:

• lenders will be looking at the solvency of a business
• rivals are interested in monitoring the profits earned by competitors
• banks can use them to make lending decisions
• government (HMRC) use financial information to calculate tax payments
• owners will look at financial statements to help them make decisions
• employees will use them to ensure their jobs are secure