6) Financial Statements

Question 1

Financial statement types?

Answer 1

Financial statement types?

.STATEMENT OF PROFIT OR LOSS (SPL)
- Contains two items: INCOME AND EXPENSES.
- Contains all transactions for the entire accounting
period, normally a year.
- Trading and profit or loss account (P&L account).

STATEMENT OF FINANCIAL POSITION (SFP) (BALANCE SHEET)
-Shows the financial position of the organization which is
the ASSETS OWNED/CONTROLLED and LIABILITIES OWED.
-Normally completed the last day of the accounting year.

Question 2

Accounting equation?

Answer 2

Accounting equation?

ACCOUNTING EQUATION
-Shows how the Statement of financial position (SFP) works.
-Helps understanding of double entry bookkeeping

EQUATION
1) ASSETS - LIABILITIES = CAPITAL (PROPRIETORS
INTEREST).
-Example - ASSETS (5) LESS LIABILITIES (2) = CAPITAL (3)
5-2=3.
- FORMULA CAN BE REARRANGED IN DIFFERENT WAYS. IF
REARRANGED SHOULD ALWAYS BALANCE
- REARRANGE EXAMPLE: ASSETS = CAPITAL
(PROPRIETORS INTEREST) + LIABILITIES OR ASSETS -
CAPITAL = LIABILITIES.
2) LIABILITIES = ASSETS - CAPITAL
3) ASSETS = LIABILITIES + CAPITAL

Question 3

Brackets in accounting

Answer 3

Brackets in accounting

.Brackets in accounting means the subtraction of an
amount.

Question 4

Assets, liabilities and capital meaning?

Answer 4

Assets, liabilities and capital meaning?

.ASSET = owned or controlled by the organisation e.g. property, vehicles and cash.

.LIABILITIES = owed by the organisation e.g. bank loans, unpaid tax and payables.

.CAPITAL = owed by the organisation to the owners of the entity (CASH AND ASSETS).