3.4C Final Accounts - Balance Sheet

Question 1

What is a “balance-sheet”?

Answer 1

A balance sheet is a statement of the financial position of a business in terms of assets, liabilities and owner’s equity at a particular point in time such as at the end of a financial year.

Question 2

What are “assets”?

Answer 2

Possessions of a business with a monetary value (eg. buildings, land)

Question 3

What are “liabilities”?

Answer 3

The debts of a business (the money you owe to others)

Question 4

What are “fixed” assets?

Answer 4

Long-term tangible items of value owned by the company that are not purchased for resale but to contribute to the operations of the business, and have a lifespan of over 12 months or are not sold within a year. (eg. machinery, land)

Question 5

What are “current” assets?

Answer 5

Possessions of an organization with a monetary value, but intended to be liquidated within twelve months. (eg. cash, debtors and stocks)

Question 6

What is “cash”?

Answer 6

Refers to the money the organization has “in-hand”,
this is a CURRENT asset

Question 7

What are “debtors”?

Answer 7

Refers to an individual or business customer that owes money to the organization because they bought g/s on a trade credit. This is a CURRENT asset

Question 8

What is “stock”?

Answer 8

The goods that a business has available for sale

Question 9

What are “current liabilities”?

Answer 9

Short-term debts of a business, which need to be repaid within twelve months. (eg. overdrafts, trade creditors, short-term loans, and outstanding tax payments)

Question 10

What are “overdrafts”?

Answer 10

Allows customer to temporarily take out more money than what is available in the account. Has to be repaid. This is a CURRENT LIABILITY.

Question 11

What are “trade creditors”?

Answer 11

Suppliers may give trade credit (3-60 days), which needs to be repaid. This is a CURRENT LIABILITY.

Question 12

What are “short-term loans”?

Answer 12

Loans from a financial lender (eg. bank), which has to be repaid within 12 months. This is a CURRENT LIABILITY.

Question 13

What are “tax payments”?

Answer 13

Made to the government if the business earns net profit after all costs and expenses have been paid for

Question 14

What is “working capital”?

Answer 14

The money a firm has for its daily operations

(also called net current assets)

Question 15

What is another name for “working capital”?

Answer 15

net current assets

Question 16

How do you calculate “working capital”?

Answer 16

Working capital = current assets - current liabilities

Question 17

What are “net assets”?

Answer 17

Refers to the overall value of an organizations assets after all its liabilities are deducted.

Question 18

How do you calculate “net assets”?

Answer 18

Net assets = Total assets - Total liabilities

Question 19

For a balance sheet to balance, what must the firms net assets equal?

Answer 19

Net assets MUST EQUAL the organization’s equity

Question 20

What is “Equity”?

Answer 20

1. Share Capital (value of equity in a business funded by shareholders through IPO/ share issues)
2. Retained profit (value of equity in a business funded by net profit after tax that is NOT paid out)

Question 21

What is the layout of a “Balance Sheet”?

Answer 21

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