Balance Sheet 1 Flashcards
what questions can the balance sheet answer
what is the risk associated with the organisation and does the organisation have sufficient cash
what accounting things are owned
assets and expenses
what accounting things are owed
liabilities, income and capital
what are assets
what is owned and controlled and will create future benefit
what are liabilities
what is owed to others
what is capital
investment from shareholder or owner
what is income
revenue from goods sold or services supplied
what are expenses
costs of day to day operations
how can the income statement be summarised
income - expenses = profit/loss
financial performance over a period of time - movie
how can the balance sheet be summarised
assets = liabilities + capital
financial position at a point in time - photograph
non-current
long term - more than one year
current
short term - less than one year
how do you calculate the top half of the balance sheet
total assets less current liabilities
non-current assets + current assets - current liabilities
how do you calculate the bottom half of the balance sheet
capital employed = shareholders equity + non-current liabilities
(shareholders equity = share capital + reserves)
is the balance sheet a good overview of the business
it is a narrow view of the business because many balances are constantly changing
how is the accounting equation for the balance sheet arranged
assets = liabilities + capital
what are non current assets
(fixed) assets which are bought and used for several years
what are the three types of non current assets
intangible, tangible and investments
intangible
not physical
eg goodwill, trademarkst
tangible
physical
buildings, equipment
investments
shares in another company
what is depreciation
expensing the cost of a non-current asset over its useful life
what are the two methods of depreciation
straight line and reducing balance
how is the depreciation reported using the straight line method
annual depreciation expense = (cost of asset - residual value) / life of asset
how is the depreciation reported using the reducing balance method
annual depreciation expense = % x net book value
what is ammortisation
depreciation as applied to intangible assets
what is working capital
short term capital that is working day to day
WC = current assets - current liabilities
what are inventories and what are the three types
(stocks) goods that the business owns and hopes to sell
raw materials, work in progress, finished goods
how do you value inventories
lower of cost or net realisable value
(cost = cost of purchase/production)
(nrv = sales price - additional costs)
what are trade receivables
(debtors) customers who have purchased goods but are still yet to pay - on credit (still owe money)
how are current assets presented in the balance sheet
in reverse order of liquidity - most to least difficult to convert into cash
what are bad debts and how do they present on financial statements
customers who will not pay
expense in the income statement (reduced profits)
reduction to receivables in balance sheet (lower assets)
what is provision for doubtful debts
a buffer that would hopefully absorb any bad debts, only an estimate (%) usually based on past experience
what are prepayments
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
what is cash
physical cash and bank deposits
what are cash equivalents
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
what are current liabilities
amount of money owed to others (creditors) due to be paid within one year
what are four types of current liabilities
trade payables, bank loans, overdrafts, accruals
what are trade payables
money owed for supplies of goods or services used day to day
what are bank loans
only short term loans are considered current
what are overdrafts
semi-permanent loans, but the bank could request repayment at short notice
what are accruals
day to day bills still owing at the end of the year
