Balance Sheet Flashcards
What is an Asset?
They are what a business owns.
There are two types:
1) Current (short-term, months)
2) Fixed (long-term, years)
What is a Liability?
They are what a business owes.
There are two types:
1) Current (short-term, months)
2) Non-current (long-term, years)
What is the purpose of the document?
The document shows:
A) where the business has got the money from (Liabilities).
B) where the money has been spent (Assets).
When is it produced and what is a key fact regarding the document?
- Produced at the end of financial year.
- key fact, is that the information in the document is only relevant to the day on which it’s produced.
What are FIXED assets?
They are items that the business owns that can be sold in order to increase capital. However, they cost a lot of money and represent a large investment for the business.
What are CURRENT assets?
Value of stock, computer equipment, debtors or an interior designer working on a job for a client.
What are CURRENT liabilities?
Short-term loan, bank overdraft, interest to debenture holders and share dividend payment.
What is share capital?
Money which shareholders invested into business.
What are reserves?
Profit from previous years which have been retained to finance future developments.
What is the formula for Net current assets/liabilities?
Current Assets - Current Liabilities
What is the formula for Total assets less current liabilities?
Total Assets - Current Liabilities
List 3 reasons why balance sheets are important.
1) You could identify whether there’s enough money secured in items which could be sold to raise capital?
2) You can see whether share holders funds are increasing overtime?
3) You can determine whether there’s enough cash in the bank to cover a short-term crisis?
What is the formula for ROCE?
What does it indicate?
(Net profit/capital employed) x 100
Indicates to shareholders the profitability of their investments. High and stable ROCE can be a sign of a very good company.
What is the formula for ACID TEST RATIO?
What does it measure?
(Current assets - Closing stock) / current liabilities.
- Measures Liquidity.
What is the formula for CURRENT RATIO?
Current assets / current liabilities.
