Balance sheet

Question 1

What are debtors?

Answer 1

• People who owe the business money.
• They represent the total value of sales to their
  customers for which payment has not yet been
  received.

Question 2

What are trade creditors

Answer 2

• Businesses to which the business owes money.
• A business is likely to have purchased goods from
  suppliers or services on credit so that payments are still
  outstanding.
• These debts must be be paid within 12 months/a short
  period of time.

Question 3

What are drawings?

Answer 3

• Money taken out of the business by the owner - a
  reduction of owner’s capital – a withdrawal by a sole
  trader (the owner) from the business for personal
  reasons.
• Represents the salary taken out of an unlimited liability
  business.
• If the business is owned by one person then it will
  represent their salary

Question 4

What is capital expenditure?

Answer 4

• Spending on new fixed assets – such as machinery,
  buildings, polytunnels.

Question 5

Why might a balance sheet be useful?

Answer 5

• Shareholders are owners of the business, so they want
  to know how well it is doing.
• Gives a picture of the assets/what the business owns
  and the liabilities/what the business owes.
• If the current liabilities are a lot more than the current
  assets in each year, then the business could have a
  problem in paying its debts.
• Can be compared over time

Question 6

Importance of working capital

Answer 6

• Working capital is needed to pay for raw materials and
  running costs. Production/growth would be halted if a
  business runs out of raw materials
• If a business has too little working capital it may
  struggle to finance increased production without
  straining its liquidity position.

Question 7

What is a balance sheet?

Answer 7

A measure of the assets and liabilities of a
business.

Question 8

What are fixed assets

Answer 8

Items owned by the business which do
not change in the short term/they last a long time/used
repeatedly, e.g. buildings/machines/vehicles.

Question 9

What are current assets?

Answer 9

Assets which can be converted into cash
quickly, e.g. stock, debtors, cash in till/bank.

Question 10

What are current liabilities?

Answer 10

What the business owes, and which
must normally be paid within 12 months, e.g. overdraft,
creditors.

Question 11

What are long term liabilities?

Answer 11

Money owed to others that will
take more than a year to pay back, e.g. bank loan and
debentures.

Question 12

What is capital employed?

Answer 12

The total money that has been invested
in the business such as shareholders’ funds (share capital);
owners’ capital; retained profit and reserves