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Accounting and Entrepreneurship > Balance Sheet 1 > Flashcards

Balance Sheet 1 Flashcards

1
Q

what questions can the balance sheet answer

A

what is the risk associated with the organisation and does the organisation have sufficient cash

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2
Q

what accounting things are owned

A

assets and expenses

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3
Q

what accounting things are owed

A

liabilities, income and capital

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4
Q

what are assets

A

what is owned and controlled and will create future benefit

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5
Q

what are liabilities

A

what is owed to others

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6
Q

what is capital

A

investment from shareholder or owner

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7
Q

what is income

A

revenue from goods sold or services supplied

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8
Q

what are expenses

A

costs of day to day operations

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9
Q

how can the income statement be summarised

A

income - expenses = profit/loss
financial performance over a period of time - movie

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10
Q

how can the balance sheet be summarised

A

assets = liabilities + capital
financial position at a point in time - photograph

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11
Q

non-current

A

long term - more than one year

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12
Q

current

A

short term - less than one year

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13
Q

how do you calculate the top half of the balance sheet

A

total assets less current liabilities
non-current assets + current assets - current liabilities

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14
Q

how do you calculate the bottom half of the balance sheet

A

capital employed = shareholders equity + non-current liabilities
(shareholders equity = share capital + reserves)

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15
Q

is the balance sheet a good overview of the business

A

it is a narrow view of the business because many balances are constantly changing

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16
Q

how is the accounting equation for the balance sheet arranged

A

assets = liabilities + capital

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17
Q

what are non current assets

A

(fixed) assets which are bought and used for several years

18
Q

what are the three types of non current assets

A

intangible, tangible and investments

19
Q

intangible

A

not physical
eg goodwill, trademarkst

20
Q

tangible

A

physical
buildings, equipment

21
Q

investments

A

shares in another company

22
Q

what is depreciation

A

expensing the cost of a non-current asset over its useful life

23
Q

what are the two methods of depreciation

A

straight line and reducing balance

24
Q

how is the depreciation reported using the straight line method

A

annual depreciation expense = (cost of asset - residual value) / life of asset

25
Q

how is the depreciation reported using the reducing balance method

A

annual depreciation expense = % x net book value

26
Q

what is ammortisation

A

depreciation as applied to intangible assets

27
Q

what is working capital

A

short term capital that is working day to day
WC = current assets - current liabilities

28
Q

what are inventories and what are the three types

A

(stocks) goods that the business owns and hopes to sell
raw materials, work in progress, finished goods

29
Q

how do you value inventories

A

lower of cost or net realisable value
(cost = cost of purchase/production)
(nrv = sales price - additional costs)

30
Q

what are trade receivables

A

(debtors) customers who have purchased goods but are still yet to pay - on credit (still owe money)

31
Q

how are current assets presented in the balance sheet

A

in reverse order of liquidity - most to least difficult to convert into cash

32
Q

what are bad debts and how do they present on financial statements

A

customers who will not pay
expense in the income statement (reduced profits)
reduction to receivables in balance sheet (lower assets)

33
Q

what is provision for doubtful debts

A

a buffer that would hopefully absorb any bad debts, only an estimate (%) usually based on past experience

34
Q

what are prepayments

A

something owed to the business reported under other current assets
they are deducted from the current years income statement expenses but reported in the income statement of the relevant period

35
Q

what is cash

A

physical cash and bank deposits

36
Q

what are cash equivalents

A

short term highly liquid investments that are readily convertible to a known amount of cash, subject to low risk or changes in value eg money in a deposit account with less than three months to withdraw

37
Q

what are current liabilities

A

amount of money owed to others (creditors) due to be paid within one year

38
Q

what are four types of current liabilities

A

trade payables, bank loans, overdrafts, accruals

39
Q

what are trade payables

A

money owed for supplies of goods or services used day to day

40
Q

what are bank loans

A

only short term loans are considered current

41
Q

what are overdrafts

A

semi-permanent loans, but the bank could request repayment at short notice

42
Q

what are accruals

A

day to day bills still owing at the end of the year

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