2. AEq and dual aspect

Question 1

statement of financial position

Answer 1

• lists the assets, liabilities and capital of a business
• also referred to as a balance sheet
• tells us about value of business, not profit

Question 2

define
1. assets
2. non current
3. current

Answer 2

1. resources controlled by an entity that are expected to bring economic benefits
2. are to be owned for longer than 12 months
3. owned at the date but are to be used by the business to make profits in the next 12 months

Question 3

give examples of
1. non current assets (4)
2. current assets (3)

Answer 3

1. • Building
     - Furniture
     - Machinery
     - Motor vehicles
2. • goods made bt the business to sell ie inventory(stock)
     - money owed to hte business by others ie trade receviables
     - bills paid in advance ie prepayment
     - cash

Question 4

define
1. liability
2. non current
3. current

Answer 4

1. an amount owed by the business
2. the payment of liability is due after 12 months
3. the payment of the liability is due within the next 12 months

Question 5

give examples of
1. non current liabilities
2. current liabilities

Answer 5

1. • Bank loan repayable in 2/3/4…5 years
     - Loan to any person, except the owner of the business, repayable in 2/3/4…
     years
2. • Amounts the business owes to suppliers – trade payables (creditors)
     - Amounts the business owes in respect of bills not yet received but where the
     service has already benefited the business. Outstanding amounts owed on
     gas/electricity bills.
     - Amounts owed in interest on loans
     - Amounts owed to HMRC

Question 6

define capital

Answer 6

• represents the amount owned by the owner of the business
• made up of
  > investment in the
  business by the owner
  > items removed from the
  business by the owner
  > profits earned by the
  business

Question 7

what is the accounting equation

Answer 7

ASSETS = LIABILITIES + CAPITAL

Question 8

accrual accounting (matching concept)

Answer 8

• all transactions are recognised and recorded as they occur, not when the payments have been made

Question 9

income statement

Answer 9

• profit and loss statement
• shows business performance over a period of time
• takes to account all revenue
• deducts cost of sales and expenses