Chapter 30: Statement Of Financial Position Flashcards
What is a statement of financial position?
A summary of a firm’s assets, liabilities, and capital at a particular point in time, also known as a balance sheet.
Why do businesses prepare a statement of financial position?
To show their financial position at the end of the financial year.
What are assets?
Resources used or owned by a business, such as cash, stock, machinery, tools & equipment.
What are liabilities?
Debts of the business, which provide a source of funds.
What is capital?
Finance provided by the owners of the business.
What are non-current assets?
Assets that last for more than one year.
What are current assets?
Assets likely to be changed into cash within a year.
What is liquidity?
How easily and quickly an asset can be converted into cash.
What are trade receivables?
Amounts of money that are owed to a company by its customers.
What are current liabilities?
Debts that must be repaid within a year.
What are examples of current liabilities?
Trade payables, taxation, leases, hire purchase, short-term loans, and overdrafts.
What are net current assets?
Current assets minus current liabilities, representing working capital.
Why are net current assets important?
They show the liquid resources available to cover running costs and avoid cash flow problems.
What are non-current liabilities?
Debts that are payable after 12 months.
How are net assets calculated?
Value of all assets minus the value of all liabilities; total at the bottom of the first part of the balance sheet.
What does the shareholders’ equity section show?
The capital invested by owners, including share capital, retained profit, and reserves.
What is share capital?
Money invested by shareholders in a business.
What are other reserves?
Additional amounts owed to shareholders not listed under share capital or retained profit.
What is capital employed?
Total money invested in a business.
Why are financial statements compared over two years?
To enable immediate comparisons of financial performance.
How can a statement of financial position help evaluate a business?
It shows the value of assets, liabilities, capital, asset structure, and working capital.
What is goodwill in business valuation?
Value that a company has because it has a good relationship with its customers & suppliers.
Why is the value of net assets an approximate business value?
Because assets can be difficult to value exactly, and intangible assets may exist.
