5.3 Accounting Fundamentals

Question 1

Income statement

Answer 1

Records the revenue, costs and profit (or loss) of a business over a given period of time.

Question 2

Low quality profit

Answer 2

One off profit that cannot easily be repeated or sustained.

Question 3

High quality profit

Answer 3

Profit that can be repeated and sustained.

Question 4

Balance sheet

Answer 4

An accounting statement that records the values of a business’ assets, liabilities and shareholders’ equity at one point in time.

Question 5

Asset

Answer 5

An item of monetary value that is owned by a business.

Question 6

Liability

Answer 6

A financial obligation of a business that it is required to pay in the future.

Question 7

Current liabilities

Answer 7

Debts of the business that will usually have to be paid within one year.

Question 8

Non-current liabilities

Answer 8

Value of debts of the business that will be payable after more than one year.

Question 9

Working capital

Answer 9

The capital needed to pay for day-to-day running costs and credit offered to is equal to current assets minus current liabilities.