Chapter 1: Financial Statements

Question 1

4 types of Financial Statements

Answer 1

1. Financial position (balance sheet)
2. Income
3. Changes in equity
4. Cash flows

Question 2

Balance sheet reports three items:

Answer 2

Assets, liabilities and shareholders equity

Question 3

Assets divided into two categories:

Answer 3

1. non-current assets - assets will not be sold, consumed or converted into money during the next year
2. current assets - expected to be sold, consumed or converted into money within 1 year or production cycle

Question 4

Liabilities into two categories:

Answer 4

1. non-current liabilities - assure outflow of economic benefits in more than a year
2. current liabilities - expected to be redeemed within 1 year

Question 5

Shareholders equity consists of:

Answer 5

Share capital - money invested by shareholders

Retained earnings - capital retained within company

Question 6

First accounting formula:

Answer 6

Assets = Liabilities + Shareholder’s Equity

Question 7

Income statement

Answer 7

Reports revenues and expenses of an organisation for a time period
Result - net income or net loss

Question 8

Income statement order

Answer 8

Sales
Cost of sales
1. Gross profit
R&D expenses
Selling, general and administrative expenses
Other operating expenses
2. Operating profit
Finance income and expense
3. Profit before income tax
Income tax expense
4. Net profit

Question 9

Statement of Other Comprehensive Income

Answer 9

Presents overview of unrealised company results. Other changes in values, not accountable to equity also taken into account

Question 10

Second accounting formula:

Answer 10

Reveues - Expenses = Net Income

+- Other comprehensive income = Total comprehensive income

Question 11

Statement of Changes in Equity

Answer 11

Repurchasing of shares and dividend payouts, transactions between organisation and shareholders

Question 12

Statement of Cash Flows reports cash flow of:

Answer 12

1. Operating activities
2. Investing activities
3. Financing activities