2. The Statement of Financial Position and Income Statement Flashcards
What does the Statement of Financial Position show?
A list of what the company owns, are owed and owes.
What are assets?
An economic resource controlled by the business.
What the company owns.
What are liabilities?
Anything the company owes.
What is capital?
Money owed to the owner.
Where does profit fall under on the Statement of Financial Position?
In the capital section.
What are the two main sections of the Statement of Financial Position?
- Assets: Everything the business owns.
- Capital and Liabilities: Everything the business owes.
What are the two main headings of the assets section in the Statement of Financial Position?
- Non-current assets
- Current assets
What are non-current assets?
Assets the company intends to keep.
Usually when they are intended to be kept for more than a year.
What are current assets?
Assets that keep changing.
Where does Land and Buildings sit on the Statement of Financial Position?
Assets -> Non-current assets -> Land and Buildings
Where does Plant and Equipment sit on the Statement of Financial Position?
Assets -> Non-current assets -> Plant and Equipment
Where do Fixtures and Fittings sit on the Statement of Financial Position?
Assets -> Non-current assets -> Fixtures and Fittings
Where does Motor Vehicles sit on the Statement of Financial Position?
Assets -> Non-current assets -> Motor Vehicles
Where does Inventory sit on the Statement of Financial Position?
Assets -> Current Assets -> Inventory
Where does Accounts Receivable sit on the Statement of Financial Position?
Assets -> Current Assets -> Accounts Receivable
Where do Prepayments sit on the Statement of Financial Position?
Assets -> Current Assets -> Prepayments
Where does Cash sit on the Statement of Financial Position?
Assets -> Current Assets -> Cash
How must capital be shown for a sole trader on the Statement of Financial Position?
Must show the following separately:
- Capital at the start of the year
- Profit during the year
- Drawings taken out during the year
Where does Capital at the beginning of the year sit on the Statement of Financial Position?
Capital and Liabilities -> Capital -> Capital at ‘date’.
Where does Profit for the year sit on the Statement of Financial Position?
Capital and Liabilities -> Capital -> Profit
Where do Drawings sit on the Statement of Financial Position?
Capital and Liabilities -> Capital -> Less: Drawings
Where do Loans sit on the Statement of Financial Position?
Capital and Liabilities -> Non-current Liabilities -> Loan
Where do Accruals sit on the Statement of Financial Position?
Capital and Liabilities -> Current Liabilities -> Accruals
Where do Accounts Payable sit on the Statement of Financial Position?
Capital and Liabilities -> Current Liabilities -> Accounts Payable
Where do Bank Overdrafts sit on the Statement of Financial Position?
Capital and Liabilities -> Current Liabilities -> Bank overdraft
What are the three main headings of the Capital and Liabilities section in the Statement of Financial Position?
- Capital
- Non-current Liabilities
- Current Liabilities
What are non-current liabilities?
Liabilities that will still be owed in more than a year from the date on the Statement of Financial Position.
What are current liabilities?
Liabilities that are payable in less than a year from the date of the Statement of Financial Position.
What are Accruals?
When money is owed for an expense, but the company has not yet received a bill.
What is Inventory?
An asset bought by the business with intent to sell.
What is accounts receivable?
Amount owed to the business by customers.
What is Prepayment?
A payment made by the business in advance.
What is accounts payable?
Liability due to suppliers.
What section of the Statement of Financial Position is different for a Limited Company and Sole trader?
The capital heading.
What is sales revenue?
Money made from the sale of goods.
Where is opening inventory on the Statement of Profit or Loss?
Under Cost of sales:
Where is purchases on the Statement of Profit or Loss?
Under Cost of sales:
How is Cost of Sales calculated?
Opening inventory + purchases - closing inventory
How is gross profit calculated?
Sales revenue less cost of sales
What does purchases mean in respect to accounting?
The purchase of goods for sale.
Where is rent received on the Statement of Profit or Loss?
Under Other income:
Where is interest received on the Statement of Profit or Loss?
Under Other income:
Give five examples of expenses on the Statement of Profit or Loss.
- Rent
- Electricity
- Telephone
- Wages and salaries
- Motor expenses
How is net profit calculated on the Statement of Profit or Loss?
Gross profit + Other income - Expenses
What is the trading account when referring to the Statement of Profit or Loss?
The section from sales revenue to gross profit.
What is Capital Expenditure?
Purchase of a non-current asset.
In which statement does capital expenditure appear?
The Statement of Financial Position
What is Revenue Expenditure?
The payment of expenses.
In which statement does revenue expenditure appear?
The Statement of Profit or Loss.
What is the Accounting Equation?
Increase in net assets = Capital Introduced + Profit - Drawings
How are net assets calculated?
Assets - Liabilities
