Assets And Liabilities Flashcards
What is an asset?
An asset is something a business OWNS
What is a liability?
A liability is something a business OWES
What is a fixed asset?
A fixed asset is something a business owns that is expected to last longer than a year
What is a current asset?
A current asset is something the business owns that is expected to last under a year
Current assets are easy to replace and replenish regularly
What are examples of fixed assets?
Tills, fixtures and fittings and delivery vehicles
What are examples of current assets?
Raw materials, stock, cash in hand, cash in bank and cash in safe
What is a debtor?
A debtor is a customer who owes money to the business for goods they have bought
Is a debtor a fixed asset or a current asset?
A debtor is a current asset as they’re expected to pay the business in under a year
What is a current liability?
A current liability is an amount a business currently owes and it needs to be paid within a year
It is short term
What is a non-current liability?
A non-current liability is an amount that a business owes, that does not have to be paid within a year of the balance sheet date
It is long term
What are examples of current liabilities?
Overdraft, short term loan, creditors and bills
What are examples of non-current liabilities?
Overdraft, long term loan and mortgage
What is an overdraft?
An overdraft is an amount of money that helps cash flow and ensures that customers can have sufficient funds until they are paid. When they are paid the overdraft will be immediately taken out of their accounts on the payday
Why can loans be both current and non-current?
Whether a loan is current or non-current depends on the size of the business
A bigger business i.e Tesco, would call a loan of £125,000 a current loan as they can easily pay it off within a year
Whereas a smaller business i.e Yeo Valley would call a loan of £125,000 a non-current loan as they cannot easily pay it off within a year
What is working capital?
Working capital measures the short term health of a business
What is the calculation for working capital?
Current assets- current liabilities
What are the negatives of working capital?
It only shows the short term health of a business, and it does not show business successes or failures as it is just a figure
Why can overdraft be both a current and non-current liability?
The size of the overdraft and the size of the business depends whether an overdraft is a current or non-current liability
What should you recommend for a business to do after calculating their working capital?
Recommend that the business calculate more ratios - I.e acid test ratio, to fully understand their financial position
What’s the structure for answering an 8 marker on working capital?
1) Define working capital
2) List the advantages
3) List the disadvantages
4) Conclude with your recommendations
What are the positives of working capital?
It is easy to calculate and the figures are easy to obtain from a balance sheet
