The Balance Sheet

Question 1

What are the five accounting things?

Answer 1

• Assets
• Liabilities
• Capital or Equity
• Income
• Expenses

Question 2

What are Assets?

Answer 2

What is owned and controlled and will create future benefit.

Question 3

What are liabilities?

Answer 3

What is owed to others.

Question 4

What is capital?

Answer 4

Investment from shareholder or owner

Question 5

What is the income?

Answer 5

The revenue from the goods sold or services provided.

Question 6

What are the expenses?

Answer 6

Cost of day-to-day operations of the business.

Question 7

What of the five accounting things are shown in the balance sheet?

Answer 7

Assets, Liabilities and Capital.

Question 8

What does the balance sheet show?

Answer 8

The financial position of a business ata certain point in-time.

Question 9

What are Assets and Liabilities split into?

Answer 9

Non-current Assets and current assets.
Non-current Liabilities and current liabilities.

Question 10

How is the working capital calculated?

Answer 10

Current Assets - Current Liabilities

Question 11

What is the balance sheet important for?

Answer 11

Interpretating financial statements.

Question 12

What are intangible assets?

Answer 12

Non-current, non-physical. For example; Goodwill, patents, trademarks, licences.

Question 13

What are tangible assets?

Answer 13

Non-current physical assets. For example; Vehicles, buildings, machinery, equipment.

Question 14

What is depreciation in accounting terms?

Answer 14

Expensing the cost of a non-current asset over its useful life.

Question 15

What are the two methods of depreciation?

Answer 15

• Straight line method
• Reducing balance method

Question 16

What happens in the straight line method of calculating depreciation?

Answer 16

There is an equal amount charged every year.

Question 17

What happens in the reducing balance method of depreciation?

Answer 17

The amount decreases every year.

Question 18

How is the depreciation method decided?

Answer 18

A judgement by the managers.

Question 19

Where is the depreciation policy found?

Answer 19

In the notes of the financial statement.

Question 20

What does depreciation affect?

Answer 20

Both the profit/loss and the reported asset value.

Question 21

What is working capital?

Answer 21

Short term capital that is working day-to-day.

Question 22

How is the working capital calculated?

Answer 22

Current assets - Current Liabilities

Question 23

What are the inventories?

Answer 23

The good the business owns and hopes to sell; raw materials, Works in progress, and finished goods however some companies may only have finished goods.

Question 24

What are trade receivables (debtors)?

Answer 24

Customers (individual or a business) who have purchased goods but are still yet to pay.

Question 25

What is liquidity?

Answer 25

The ease of converting an asset into cash, the cash itself being the most liquid asset of all.

Question 26

How are trade receivables presented?

Answer 26

In reverse order of liquidity, how difficult it is to convert it into cash.

Question 27

How do bad debts come about?

Answer 27

When customers don't pay their bills (refuse or go bankrupt)

Question 28

What do bad debts become in the IS and the balance sheet?

Answer 28

An expense in the income statement. A reduction to receivables in the balance sheet.

Question 29

How might businesses prepare for bad debts?

Answer 29

Managers may set up a provision for doubtful debts. A cushion to absorb any future bad debts.

Question 30

What is a prepayment?

Answer 30

A prepayment is owed to a business and is a current asset.

Question 31

Where are the prepayments shown in the balance sheet?

Answer 31

Within the Other current assets

Question 32

Is cash subjective?

Answer 32

Yes, for example exchange rates in foreign countries.

Question 33

What is the accounting standards definition?

Answer 33

Short-term, highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.

Question 34

What is a current liability?

Answer 34

An amount that is due to be paid within one year.

Question 35

What are different types of creditor?

Answer 35

Employee, Supplier, Bank

Question 36

What are trade payables?

Answer 36

Money that is owed for the supplies of goods and services used in day-to-day operations.

Question 37

What kind of liability is a bank loan?

Answer 37

A non-current liability.

Question 38

What are overdrafts?

Answer 38

Semi-permanent (effectively a long term loan) but the bank may request repayment at short notice.

Question 39

What are the accruals in the Balance sheet?

Answer 39

The day-to-day bills still owing at the end of the year.

Question 40

What items are deducted on the balance sheet?

Answer 40

Current liabilities