3.4 Financial Documents

Question 1

What are the two financial documents?

Answer 1

Statement of comprehensive income
Statement of financial position

Question 2

What’s a statement of comprehensive income?

Answer 2

A financial document showing a firms income and expenditure over a period of time (aka profit and loss statement)

Question 3

Limitation to a sole trader completing a profit and loss statement?

Answer 3

A new sole trader wont have a previous year or date to compare the current year to so a conclusion abt financial health cannot be drawn

Question 4

What’s a statement of financial position?

Answer 4

A snapshot of the financial circumstances of a business over a specific time period (aka balance sheet)

Question 5

Why’s a statement of financial position important?

Answer 5

Because it provides a concise summary of a companies assets, liabilities and equities
Can identify potential financial concerns and make adjustments to improve overall financial health

Question 6

Limitations to a statement of financial position?

Answer 6

Bias (bc it’s a snapshot)
No discussion on non-financial issues
Tax, cash and stock can constantly change

Question 7

Main features of a statement of financial position?

Answer 7

Current assets (cash&stock)
Non-current assets (cars)
Current liabilities (overdrive, small loans)
Non-current liabilities (mortgage, bank loans)

Question 8

3 main sections of balance sheet?

Answer 8

Assets (what it owns)
Liabilities (what it owes)
Difference (subtraction) between the two