Chapter 25 - Balance sheets

Question 1

What does the balance sheet show
another name

Answer 1

Shows the value of all of a companies assets and liabilities at a particular point in time

statement of financial position

Question 2

What are assets

Answer 2

are those items of value which are owned by the business

Question 3

What are liabilities

Answer 3

are debts owed by the business

Question 4

2 types of assets and definitions
2 types of liabilities and definitions

Answer 4

Non-current assets - items owned by the business for more than one year
eg: machinery

Current assets - items owned by a business and used within one year
eg: raw materials

Non-current liabilities - long-term debts owed by the business, repaid over more than one year.
eg: long term loans

current liabilities - short-term debts owed by
the business, repaid in less than one year.
eg: payments to suppliers

Question 5

What is shareholders’ equity
another name

Answer 5

is the total sum of money invested into the business by the owners of the company
shareholders’ fund

Question 6

What are the 2 components of the shareholders’ fund

Answer 6

Money put into business when shareholders buy newly issued shares

Retained profits that havent been paid out in the form of dividends

Question 7

Formula for working capital

Answer 7

Current assets - Current liabilites

Question 8

What does the balance sheet allow a reader to see and interpret

Answer 8

If the value of the equity has gone up or down

What method of finance the business is using to expand (taking loans - increase in non-current liabilities, or selling inventory - decrease in current assets)

Question 9

Formula for capital employed

Answer 9

Shareholders’ fund + Non-current liabilities