u2- balance sheets

Question 1

what are current assets

Answer 1

short-term assets e.g. cash

Question 2

what are non-current assets

Answer 2

fixed assets which will be a resource of the company for a long period of time e.g. land/buildings, equipment

Question 3

what are tangible vs. intangible assets

Answer 3

tangible= physical/ material substance (can be touched) e.g inventories, machines
intangible= no physical/ material substance (cannot be touched) but still provides expected future benefits

Question 4

define inventory

Answer 4

stock of goods and products a company holds

Question 5

what is the net assets

Answer 5

assets- liabilities= net assets (= equity)

Question 6

what are liabilities

Answer 6

obligation of an entity arising from past events e.g. long-term loans, bank overdraft, credit purchases

Question 7

what are non-current vs. current liabilities

Answer 7

current= expected to be settled in entities normal operating cycle (12 months)
non-current= long-term liabilities expected to be repaid in more than a year

Question 8

what is equity

Answer 8

owners/shareholders’ stake in a business. assets- liabilities= equity

Question 9

how should the value of an asset on the balance sheet be shown

Answer 9

based on historic cost (amount paid on transaction date)

Question 10

how is inventory valued on balance sheet

Answer 10

at its cost, not selling price or current market value

Question 11

define historical cost vs. fair value

Answer 11

historical cost- amount paid for an asset on transaction date, enhances verifiability but relevance is reduced
fair value- price that would be received to sell an asset, this enhances relevance

Question 12

define dividend

Answer 12

amount of money the company gives back to its shareholders at end of the year as incentive for shareholders to invest in the company

Question 13

what does business entity convention state

Answer 13

a business’ financial transactions and records are kept separate from its owners, treating the business as a distinct entity

Question 14

define prudence convention

Answer 14

revenue should only be recognised when it is certain to ensure revenues are not overestimated

Question 15

define going concern convention

Answer 15

assumes the company will continue operating for the foreseeable future unless there is evidence otherwise

Question 16

define monetary measurment convention

Answer 16

transcations/ events should only be recorded in monetary terms (currency)