Prework Statement of Financial Position

Question 1

What does the statement of financial position consider?

Answer 1

What the business owns or controls and what the business owes.

owes- liabilities
owns and controls- assets

Question 2

what are the two types of assets?

Answer 2

current and non current

Question 3

what are non current assets?

Answer 3

assets acquired for use within a business over more than one year with a view to earning profits, but not for immediate resale

Question 4

what are examples of non-current assets?

Answer 4

land
buildings
plant and machinery
patents
motor vehicles
tools
fixtures and fittings
office equipment
computes
long term investments
art
locomotives

Question 5

what are current assets?

Answer 5

assets acquired for conversion into cash in the ordinary course of business
- usually within 12 months

Question 6

what are examples of current assets?

Answer 6

• inventory (goods for resale)
• cash (positive bank balance, physical cash)
• receivables (selling goods to customers on credit i.e. they pay us later)

Question 7

What are the 2 types of liabilites?

Answer 7

non current and current

Question 8

what are non current liabilities?

Answer 8

amounts owed by the business, payable in more than one year after the date of the statement of financial position

Question 9

What is an example of a non-current liability?

Answer 9

bank loans

Question 10

What is meant by current liabilities?

Answer 10

short term liability- amount owned by the business and payable within 12 months

Question 11

What are examples of current liabilities?

Answer 11

• trade payables
• bank overdraft

Question 12

what is meant by the business entity concept?

Answer 12

• the owner and manager are treated as 2 separate entities
• if the business owner puts money or assets into the business, the business owes this back to the owner

Question 13

What does capital represent?

Answer 13

the total amount which the business owes to its owner, or proprietor

Question 14

How is capital calculated?

Answer 14

opening capital + capital injections + profits/ (losses) + (drawings) = closing capital

Question 15

what is meant by opening capital?

Answer 15

amount which the proprietor has invested at the start of the year

Question 16

what is meant by capital injections?

Answer 16

amounts the proprietor has invested during the business year

Question 17

what is meant by drawings?

Answer 17

amount taken out of the business by the owner this could be a salary

Question 18

How do you check if your statement of financial position is current?

Answer 18

total assets = Capital + Total liabilities