Ch 3 - Balance sheets

Question 1

What is a balance sheet?

Answer 1

An accounting report which shows the financial position of a business at a given point in time

Question 2

What is the balance sheet based off?

Answer 2

The accounting equation

Question 3

What is the accounting equation?

Answer 3

Total assets - Total liabilities = Owner’s equity

Question 4

What is a current asset?

Answer 4

Assets that are expected to be sold or used up within 12 months

Question 5

What is a non-current asset?

Answer 5

Longer term assets expected to provide economic benefit for greater than 12 months

Question 6

What is a current liability?

Answer 6

Obligations expected to be settled within 12 months

Question 7

What is a non-current liability?

Answer 7

Longer term obligations expected to be settled over a period greater than 12 months

Question 8

What is liquidity?

Answer 8

The ability of a business to meet its short term obligations as they fall due

Question 9

How do we measure liquidity?

Answer 9

Working capital

Question 10

How is working capital calculated?

Answer 10

Current assets - Current liabilities = Working capital

Question 11

What does a positive working capital mean?

Answer 11

The business is likely to meet its obligations

Question 12

What does a negative working capital mean?

Answer 12

• Current liabilities are exceeding current assets
• Business could have a liquidity issue