2. The Statement of Financial Position and Income Statement

Question 1

What does the Statement of Financial Position show?

Answer 1

A list of what the company owns, are owed and owes.

Question 2

What are assets?

Answer 2

An economic resource controlled by the business.

What the company owns.

Question 3

What are liabilities?

Answer 3

Anything the company owes.

Question 4

What is capital?

Answer 4

Money owed to the owner.

Question 5

Where does profit fall under on the Statement of Financial Position?

Answer 5

In the capital section.

Question 6

What are the two main sections of the Statement of Financial Position?

Answer 6

• Assets: Everything the business owns.
• Capital and Liabilities: Everything the business owes.

Question 7

What are the two main headings of the assets section in the Statement of Financial Position?

Answer 7

• Non-current assets
• Current assets

Question 8

What are non-current assets?

Answer 8

Assets the company intends to keep.

Usually when they are intended to be kept for more than a year.

Question 9

What are current assets?

Answer 9

Assets that keep changing.

Question 10

Where does Land and Buildings sit on the Statement of Financial Position?

Answer 10

Assets -> Non-current assets -> Land and Buildings

Question 11

Where does Plant and Equipment sit on the Statement of Financial Position?

Answer 11

Assets -> Non-current assets -> Plant and Equipment

Question 12

Where do Fixtures and Fittings sit on the Statement of Financial Position?

Answer 12

Assets -> Non-current assets -> Fixtures and Fittings

Question 13

Where does Motor Vehicles sit on the Statement of Financial Position?

Answer 13

Assets -> Non-current assets -> Motor Vehicles

Question 14

Where does Inventory sit on the Statement of Financial Position?

Answer 14

Assets -> Current Assets -> Inventory

Question 15

Where does Accounts Receivable sit on the Statement of Financial Position?

Answer 15

Assets -> Current Assets -> Accounts Receivable

Question 16

Where do Prepayments sit on the Statement of Financial Position?

Answer 16

Assets -> Current Assets -> Prepayments

Question 17

Where does Cash sit on the Statement of Financial Position?

Answer 17

Assets -> Current Assets -> Cash

Question 18

How must capital be shown for a sole trader on the Statement of Financial Position?

Answer 18

Must show the following separately:
- Capital at the start of the year
- Profit during the year
- Drawings taken out during the year

Question 19

Where does Capital at the beginning of the year sit on the Statement of Financial Position?

Answer 19

Capital and Liabilities -> Capital -> Capital at ‘date’.

Question 20

Where does Profit for the year sit on the Statement of Financial Position?

Answer 20

Capital and Liabilities -> Capital -> Profit

Question 21

Where do Drawings sit on the Statement of Financial Position?

Answer 21

Capital and Liabilities -> Capital -> Less: Drawings

Question 22

Where do Loans sit on the Statement of Financial Position?

Answer 22

Capital and Liabilities -> Non-current Liabilities -> Loan

Question 23

Where do Accruals sit on the Statement of Financial Position?

Answer 23

Capital and Liabilities -> Current Liabilities -> Accruals

Question 24

Where do Accounts Payable sit on the Statement of Financial Position?

Answer 24

Capital and Liabilities -> Current Liabilities -> Accounts Payable

Question 25

Where do **Bank Overdrafts** sit on the Statement of Financial Position?

Answer 25

Capital and Liabilities -> Current Liabilities -> Bank overdraft

Question 26

What are the **three main headings** of the **Capital and Liabilities** section in the Statement of Financial Position?

Answer 26

- **Capital** - **Non-current Liabilities** - **Current Liabilities**

Question 27

What are **non-current liabilities**?

Answer 27

Liabilities that will still be owed in **more than a year** from the date on the Statement of Financial Position.

Question 28

What are **current liabilities**?

Answer 28

Liabilities that are payable in **less than a year** from the date of the Statement of Financial Position.

Question 29

What are **Accruals**?

Answer 29

When money is owed for an **expense**, but the company has **not yet received a bill**.

Question 30

What is **Inventory**?

Answer 30

An asset bought by the business with intent to sell.

Question 31

What is **accounts receivable**?

Answer 31

Amount **owed to the business** by customers.

Question 32

What is **Prepayment**?

Answer 32

A payment made by the business **in advance**.

Question 33

What is **accounts payable**?

Answer 33

Liability due to suppliers.

Question 34

What section of the **Statement of Financial Position** is **different** for a **Limited Company** and **Sole trader**?

Answer 34

The **capital** heading.

Question 35

What is **sales revenue**?

Answer 35

Money made from the sale of goods.

Question 36

Where is **opening inventory** on the Statement of Profit or Loss?

Answer 36

Under **Cost of sales:**

Question 37

Where is **purchases** on the Statement of Profit or Loss?

Answer 37

Under **Cost of sales:**

Question 38

How is **Cost of Sales** calculated?

Answer 38

Opening inventory + purchases - closing inventory

Question 39

How is **gross profit** calculated?

Answer 39

**Sales revenue** less **cost of sales**

Question 40

What does **purchases mean** in respect to accounting?

Answer 40

The purchase of **goods for sale**.

Question 41

Where is **rent received** on the Statement of Profit or Loss?

Answer 41

Under **Other income:**

Question 42

Where is **interest received** on the Statement of Profit or Loss?

Answer 42

Under **Other income:**

Question 43

Give **five** examples of **expenses** on the Statement of Profit or Loss.

Answer 43

- Rent - Electricity - Telephone - Wages and salaries - Motor expenses

Question 44

How is **net profit** calculated on the Statement of Profit or Loss?

Answer 44

**Gross profit + Other income - Expenses**

Question 45

What is the **trading account** when referring to the Statement of Profit or Loss?

Answer 45

The section from **sales revenue** to **gross profit**.

Question 46

What is **Capital Expenditure**?

Answer 46

Purchase of a **non-current asset**.

Question 47

In which statement does **capital expenditure** appear?

Answer 47

The Statement of Financial Position

Question 48

What is **Revenue Expenditure**?

Answer 48

The payment of **expenses**.

Question 49

In which statement does **revenue expenditure** appear?

Answer 49

The Statement of Profit or Loss.

Question 50

What is the **Accounting Equation**?

Answer 50

Increase in net assets = Capital Introduced + Profit - Drawings

Question 51

How are **net assets** calculated?

Answer 51

Assets - Liabilities