Statement of financial position

Question 1

resources = assets
name 7 assets

Answer 1

• land
• building
• inventory
• trade receivables
• prepaid expenses
• intangible assets
• assets

Question 2

claims = liabilities and equity
name 3 liabilities and 2 equity

Answer 2

Liabilities - borrowing , trade payables , accrued expenses

Equity - shared capital , retained profit

Question 3

Define current assets

Answer 3

Something of value the business owns, which can easily be turned into cash and is held for less than a year. - this is short term

i.e. inventory , cash , trade receivable , prepaid expenses

Question 4

Define non current assets

Answer 4

The current value of major purchases that help in the running of the business. - long term assets

Question 5

Define assets

Answer 5

Assets is a resource from a past accounting transaction that is expected to provide future economic benefit

(Something a business owns that has monetary value such as a delivery van or money in the bank)

Question 6

define Inventory

Answer 6

Inventory is the value of items purchased by the business for sales purpose or manufacturing purpose - this is a current asset

Question 7

define trade receivable

Answer 7

includes debtors / accounts receivable is the money owed to the business by its clients arised from past sales to clients on credit - this is a current asset

e.g such as paying with an argos card

Question 8

define prepaid expenses

Answer 8

money paid in advance by the business for future expenses such as prepaid rent/insurance - this is a current assets

Question 9

define tangible assets

Answer 9

Tangible assets are non current assets with physical substance such as land, building, equipment , car, computer

Question 10

define intangible assets

Answer 10

Intangible assets are non current assets without physical body such as a patent , copy right , trademark , good will

Question 11

define patent

Answer 11

right to utilise new inventions, processes and scientific creations for a certain period of time without compensation.

Question 12

define copyright

Answer 12

right to display, share or perform original work of authorship like writing art, architecture, music

Question 13

define trademark

Answer 13

right to use brand names and logos and prohibit any marks that could confuse customers

Question 14

define Liabilities

Answer 14

A business’ debts or obligations.

it is a claim on assets by creditors that represent an obligation to make future payments

Question 14

define goodwill

Answer 14

intangible value of a firm as whole such as reputation, customer loyalty, and business secrets, which have important values
- firms are not allowed to recognise this until they aquire another firm then good will is measured .

Question 15

Current liabilities

Answer 15

any debts a business owes that will need to be paid back within a year (short-term debts).

Question 16

define Non - current liabilities

Answer 16

is usually include long-term loans such as a long-term bank loan or
debentures
that do not need paid back within a year.

debenture
A medium- to long-term loan used by large companies to borrow money, at a fixed rate of interest.

Question 17

Define Trade payable

Answer 17

money that the business owes to its suppliers, arising from past purchases of inventory made on credit.

Question 18

define - Accrued expenses

Answer 18

money the business owes to other entities because of unpaid expense it has incurred during the current accounting period (EX; bills payable)

Question 19

define cash overdraft

Answer 19

(negative cash balance) – short-term loan from the bank to the business; when cash is negative, it needs to be recorder as a liability, instead of an asset.

Question 20

define equity

Answer 20

Equity and reserves show the money that has been invested by the owners and any profit that has been kept by the business
(retained profits)

also known as net assets

is the residual claim on assets by owners after settling claims of creditors🙌🙌

Question 21

define contributed capital

Answer 21

is the contribution of the owner to the business. Could be anything in monetary terms like cash, car, building, etc

Question 22

retained profit

Answer 22

– the accumulated profits throughout the years since the business started trading after money distributed to owners.
- Retained profit can be distributed to owners. This is known as drawings or dividends.

if its a public limited company called dividends
if its a partnership then its called drawings

Question 23

List the 5 accounting principle

Answer 23

1. legal entity convention
2. dual aspect convention
3. going concern convention
4. historic cost convention
5. conservatism

Question 24

define Legal entity convention

Answer 24

– the idea that financial statements are prepared from the perspective of the company rather than the owner

Question 25

define Dual aspect convention

Answer 25

each transaction has two aspects. (look at accounting equation). (doesnt mean 2 entries)

Question 26

define Going concern convention

Answer 26

financial statements are prepared on the assumption that the business will continue to operate in the foreseeable future.

Question 27

define Historic cost convention

Answer 27

most assets are shown at their ACQUISITION COST (purchase cost), instead of current value

Question 28

define Conservatism (prudence) convention

Answer 28

liabilities and losses should NOT be understated; assets and profits should NOT be overstated.

Question 29

disadvantage of balance sheet

Answer 29

- assets are recorded as historical cost which means it doesnt show its current market value - some intangible assets are not shown especcially if internally developed