Chapter 2

Question 1

The Three Major Financial Statements

Answer 1

Statement of Cash Flows:
Shows cash movements over a specific period.

Income Statement:
Reflects the wealth (profit) generated over a specific period.

Statement of Financial Position (Balance Sheet):
Displays accumulated wealth at a specific point in time.

Question 2

Statement of Financial Position (Balance Sheet)

Answer 2

Structure:
Assets: Business resources with potential future economic benefits.
Claims (Obligations):
Equity: Claims by owner(s).
Liabilities: Claims by others.
Accounting Equation:
Assets = Equity + Liabilities

Question 3

Classification of Assets and Liabilities

Answer 3

Assets:
Current Assets:
Cash, near-cash, or items held for sale, consumption, or short-term trading.
Non-Current Assets:
Long-term assets used for business operations.
Liabilities:

Current Liabilities:
Amounts due within the operating cycle or within a year of the reporting period.
Non-Current Liabilities:
Obligations due beyond one yea

Question 4

Layouts of the Statement of Financial Position

Answer 4

Standard Layout:
Assets listed first.
Equity and Liabilities listed below.
Alternative Layout:

Assets at the top.
Deduct Non-Current and Current Liabilities from Total Assets to calculate Net Assets.
Equity is shown beneath.

Question 5

Quick Formula

Answer 5

Accounting Equation:
Assets = Equity + Liabilities

Net Assets:
Total Assets - (Current Liabilities + Non-Current Liabilities) = Equity