Chapter 3 - Financial Statemnets ( The statement of financial position )

Question 1

What is the statement of financial position ?

Answer 1

The statement of financial position is a snapshot of the accounts of buisness for a specific point in time e.g 31st December 2022. It is an accumulation since the start of the buisness

Question 2

What are the key elements to the financial postion statement ?

Answer 2

There are 3 main components

Assets - Things which hold value to the buisness such as stock or equipment
Liabilties - Money owed either through stock bought on credit or long and short term loans
Equity - The value owed to the company shareholders

Question 3

What is Current and Non - Current ?

Answer 3

Assets and liabilties can be split into two, current and non current. Current is thing which require action within a year and non current is much longer term

Current Assets- Stock, cash
Non current assets - Oven, car

Current liabilties - Short term loans , stock bought through credit
Non- Current liabilties - Mortgage, long term interest free loans

Question 4

How does Equity tie into the finanical postion statement?

Answer 4

Equity is the 3rd component of the financial position statement and the formula allows for there to be calculation to determine whether equity is owed or not to the buisnees owner. Equity provides a full picture since starting.

Question 5

What is the equity formula ?

Answer 5

Equity = Opening Capital + Capital Injections + ( Profit - Loss) - Drawings

Question 6

How does the statements of profit and loss tie into equity calculation ?

Answer 6

It ties in as it provides the value for the (profit-loss) section of the formula

Question 7

What are drawings ?

Answer 7

Drawings is money taken out of the buisness by the owner

Question 8

What is capital and how does it differ to equity ?

Answer 8

Capital is money/resources brought in by the owner into the buisness

All capital is equity but not all equity is capital. Capital is used for day to day functions