Chapter 1 - Financial Statements

Question 1

What are financial statements also known as ?

Answer 1

final accounts

Question 2

What are the two different types of financial statements ?

Answer 2

statement of profit or loss and the statement of financial position

Question 3

What is the equation used to calculate the statement of profit or loss ?

Answer 3

income - expenses = profit or loss

Question 4

what must you do to the sales revenue before calculating the statement of profit or loss to make sure that it is accurate ?

Answer 4

Deduct the cost of purchases and other expenses

Question 5

What is the equation used to calculate the statement of financial position ?

Answer 5

assets - liabilities = capital/equity

Question 6

What is meant by the term Assets ?

Answer 6

Items the business owns

Question 7

What are the two different types of Assets

Answer 7

1) Current assets
2) Non-Current assets

Question 8

What are Non-Current assets ?

Answer 8

Items/Assets with a lifespan of more than one year, that are bought for use within the business

eg: business premises, vehicles, computers

Question 9

What are Current assets ?

Answer 9

Items/Assets needed for the everyday running of the business

eg: inventory, trade receivables (money owed to the business by credit customers), and money in the bank

Question 10

If an asset is tangible what does this mean ?

Answer 10

You can see and physically touch the asset

(Basically a material substance)

Question 11

If an asset is intangible what does this mean ?

Answer 11

You can not see or physically touch the asset

Question 12

What is meant by the term Liabilities ?

Answer 12

Items that the business owes

Question 13

What are the two different types of Liabilities ?

Answer 13

1) Current liabilities
2) Non-Current liabilities

Question 14

What are Current liabilities ?

Answer 14

Short term liabilities that are repayable within 12 months

eg: trade payables ( money owed to suppliers that a business has bought on credit)

Question 15

What are Non-Current liabilities ?

Answer 15

Longer-term liabilities that are repayable in more than 12 months

eg: bank loans and mortgages

Question 16

What is Capital/Equity ?

Answer 16

Money or assets invested by the owner of the business together with profits retained in the business

in short the owners stake in the business

Question 17

How would a business paying a supplier effect the statement of financial position ?

Answer 17

It would decrease in asset - Bank
It would decrease in liability - Money owed to supplier

Question 18

How would a business buying a computer effect the statement of financial position ?

Answer 18

it would increase in asset Computer
it would decrease in asset Bank

Note - Assets would remain the same as the two transactions cancel each other out