Accounting and Finance - Financial Position

Question 1

What are the 4 asset characteristics?

Answer 1

• a probable FUTURE benefit must exist
• the the business must have an exclusive right of control
• the benefit arises from a past transaction or event
• it must be capable of being measured in monetary terms

Question 2

What are examples of non-current intangible assets?

Answer 2

Patents, trademarks, brands, goodwill.

Question 3

What are examples of non-current tangible assets?

Answer 3

Land and buildings, plant and machinery, vehicles, equipment.

Question 4

What are example of current assets?

Answer 4

Inventory, trade recievables (Debtors), prepayments, cash.

Question 5

What are examples of inventory?

Answer 5

Raw materials, work in progress, finished products.

Question 6

What are examples of current liabilities?

Answer 6

Trade payables (creditors), accrued expenses (accruals), corportation tax, VAT, payroll tax, short term loans (less than 12 months), overdrafts.

Question 7

What are example of non-current liabilities?

Answer 7

Borrowing (loan stock, debentures, mortgages), other (long term bank loans).

Question 8

What are examples of equity?

Answer 8

Shared capital invested, retained profits (previous and current), less dividends/drawings.

Question 9

What is equity in the statement of financial position?

Answer 9

“any funds contributed to the business, by the owner of the business, for use by the business in its normal operations.”

Question 10

What does the accounting concept ‘going concern’ mean?

Answer 10

The business will continue for the foreseeable future.

Question 11

What does the accounting concept ‘accruals’ mean?

Answer 11

Revenue is recognised when realised, and costs are matched against revenue.

Question 12

What does the accounting concept ‘consistency’ mean?

Answer 12

Once a particular method of accounting is selected, it should be applied consistently over time, e.g. depreciation rates, stock valuation methods.

Question 13

What does the accounting concept ‘prudence’ mean?

Answer 13

Profits are not recognised until they are realised, losses are provided for as soon as anticipated.

Question 14

In a vertical balance sheet, how is NET CURRENT ASSETS calculated?

Answer 14

Total current assets - Total current liabilities = X

Then Total non-current assets + X = NET CURRENT ASSETS

Question 15

In a vertical balance sheet, how is NET ASSETS calculated?

Answer 15

NET CURRENT ASSETS - non-current liabilities = NET ASSETS

Question 16

What is an expense?

Answer 16

Decreases in economic benefit due to decrease in assets or increase in liabilities.

Question 17

What is depreciation in the balance sheet?

Answer 17

An expense.

Question 18

What is depreciation on non-current tangible assets?

Answer 18

Process of apportioning the cost of a non-current asset to the periods of benefitting from its use.

Question 19

In double entry bookkeeping, what does DEBIT (left) represent?

Answer 19

INCREASE in assets and expenses and DECREASE in equity, revenues and liabilities.

Question 20

In double entry bookkeeping, what does CREDIT (right) represent?

Answer 20

INCREASE in equity, liabilities and revenues and DECREASE in assets and expenses.

Question 21

What is a creditor?

Answer 21

Someone who is owed money.

Question 22

Why is debit on the LHS?

Answer 22

Because left connotes to ‘bad’ and ‘bad’ people who have not paid the business yet go on the left.

Question 23

Why is CREDIT on the RHS?

Answer 23

‘Good’ people who extend credit to the business are shown on the right.

Question 24

What is a current liability?

Answer 24

Are expected to be settled within the business’s normal operating cycle. They exist principally as a result of trading. They are due to be settled within a year after the date of the relevant statement of financial position. There is no right to defer settlement beyond a year after the date of the relevant statement of financial position.

Question 25

What is an example of a non-current liability?

Answer 25

Long term borrowings.

Question 26

What is an example of a current liability?

Answer 26

Bank overdraft or amounts owed to suppliers for goods supplied on credit (trade payables).

Question 27

When would a non-current liability become a current liability?

Answer 27

In the statement of financial position as at the end of the following year, by which time they would be due for repayment after 6 months.