Chapter 7: Financial Statements

Question 1

Shows what the company owns (assets) and how it is financed. The financing includes what it owes others (liabilities) and shareholders investment (equity).

Answer 1

The balance sheet

Question 2

Identities the profit or loss generated by the company during the period covered by the financial statements.

Answer 2

The income statement

Question 3

Shows the cash received and spent during the period.

Answer 3

Cash flow statement

Question 4

Assets which include cash; inventories (unsold units of production on hand called stocks in some parts of the world); and accounts receivable (money owed to the company by customers who purchase on credit, sometimes called debtors). They are expected to be converted into cash, used up, or sold within the current operating period (usually one year).

Answer 4

Current Assets

Question 5

Includes tangible assets, such as land, buildings, machinery, and equipment, and intangible assets, such as patents. These assets are used over a number of years to generate income for the company.

Answer 5

Non-current assets

Question 6

Is calculated as the gross value of the asset minus accumulated depreciation, where accumulated depreciation is the sum of the reported depreciation expenses for the particular asset.

Answer 6

Net book value

Question 7

The process of expensing the costs of intangible assets over their useful lives. This process is similar to depreciation.

Answer 7

Amortisation

Question 8

Represents the shareholders (owners) investment in the company

Answer 8

Equity

Question 9

Debt is money that has been borrowed and must be repaid at some future date; therefore debt is a _____

Answer 9

Liability

Question 10

Credit extended by suppliers, sometimes called creditors

Answer 10

Accounts payable

Question 11

Unpaid operating expenses, such as money due to workers but not yet paid.

Answer 11

Accrued liabilities

Question 12

The accumulated net income that is retained by the company rather than distributed to its owners (shareholders) as dividends.

Answer 12

Retained earnings

Question 13

Represents the income that the company has available to retain and reinvest in the company (retained earnings) or to distribute to owners in the form of dividends (disbursements of profit).

Answer 13

Net income

Question 14

The companies owners (shareholders) are interested in knowing how much income the company has created per share.

Answer 14

Earnings per share (EPS)

Question 15

Identifies the sources and uses of cash during a period and explains the change in the companies cash balance reported on the balance sheet.

Answer 15

Statement of cash flows or cash flow statement

Question 16

A widely used ratio for measuring a companies profitability

Answer 16

Net profit margin