chapter 25 - balance sheet

Question 1

definition of:

balance sheet

Answer 1

shows value of business, assets and liabilities at a certain time

Question 2

definition of:

assets

Answer 2

items of value owned by business

Question 3

definition of:

liabilities

Answer 3

debts owed by business

Question 4

definition of:

shareholders equity

Answer 4

total sum of money invested into business by owners of company

Question 5

what are the money invested as?

Answer 5

• share capital (money put into business when shareholders bought newly issued shares)
• reserves (retained profit from current and previous years/ shareholder not paid dividend)

Question 6

format of statement of financial position

Answer 6

from most illiquid to most liquid

NCA
land and building
fixture and fittings

CA
inventory
trade receivable
bank

less: CL
trade payable
=working capital

less: NCL
long term bank loan

shareholder’s equity
share capital
Profit/loss acc

NCA + WC - NCL = shareholder’s equity

Question 7

how to interpret balance sheet?

Answer 7

*shareholders can see if their stake in business has increased or fallen in value over last 12 months by looking at total equity

• shareholders can analyse how expansion of business has been paid for:
• by increasing NCL
• from retained profits
• calculate working capital and capital employed
• calculate ratios to assess business performance