Week 3 - Preparing Financial Statements

Question 1

What is a stakeholder?

Answer 1

• Anyone interested in a businesses’ activities

Question 2

What are the 8 accounting stakeholders?

Answer 2

• Manger (Review performance of business)
• Shareholders (Prospects possible investment opportunities)
• Employees (Job security, Wage improvement, Motivation)
• Investors (Review risk and future returns associated with company)
• Suppliers (Reviews risk of trading with firm)
• Government (Tax liabilities and economic data collection)
• Banks/Lenders (Credit worthiness)
• Competitors (Relative performance of company)

Question 3

How is capital calculated?

Answer 3

• Assets - Liabilities

Question 4

What is capital?

Answer 4

• Money invested into a business at the start of a venture

Question 5

What are assets?

Answer 5

• What a business owns or is owed to the business that is of economic value

Question 6

What are liabilities?

Answer 6

• What a business owes or is owing that is of economic value

Question 7

What is an income statement?

Answer 7

• Calculation of the result of the activities of a business for a particular period

Question 8

What are the two parts that the income statement is split into?

Answer 8

• Trading account
• Profit and Loss

Question 9

What does the trading account in an income statement calculate?

Answer 9

• Gross Profit/Loss

Question 10

What does the Profit and Loss calculate in an income statement?

Answer 10

• Net Profit/Loss

Question 11

What is a trading account?

Answer 11

• Statement that calculates the gross profit that a business has made by buying and selling its goods during a particular period of time
• goods bought for resale = purchases
• goods bought and sold = sales

Question 12

What are goods that are bought and resold called?

Answer 12

• purchases

Question 13

What are goods that are sold called?

Answer 13

• Sales

Question 14

What/ how is gross profit calculated?

Answer 14

• difference between revenue and cost
• Sales - cost of good sold
• Same as revenue - cost of good sold

Question 15

What does the Profit/Loss account within an income statement calculate?

Answer 15

• Net profit a business has made for a period of time

Question 16

What is a statement of financial position?

Answer 16

• List of all liabilities, assets and capital
• Sets out financial position of organisation at particular date
• sometimes referred to as position statement
• Statement of financial position must balance (Capital = Assets - Liabilities) –> can be known as balance sheet

Question 17

What are the two types of assets?

Answer 17

• Non-current assets
• Current assets

Question 18

What are current assets?

Answer 18

• Assets which can last for shorter periods
• Cash in bank, stock…

Question 19

What are non-current assets?

Answer 19

• Assets that are expected to have a life of more than one year
• premises…

Question 20

What are the two types of liabilities?

Answer 20

• Current liabilities
• Non-current liabilities

Question 21

What are non-current liabilities?

Answer 21

• Long term liabilities
• Debts owed by the business that are not due until after one year from the balance sheet date

Question 22

What are current liabilities?

Answer 22

• Debts owed by the business that are payable within one year of the balance sheet date

Question 23

What are the 5 components of costs of goods sold?

Answer 23

• Opening stock
• Add purchases
• Less returns out
• Add carriage in
• Less closing stock