Financial Instruments

Question 1

What is needed for a financial asset?

Answer 1

Contract between financial asset and financial liability/equity

Question 2

Financial asset?

Answer 2

Contractual right to receive cash OR investment in another entity’s shares (equity of another company)

Question 3

Financial liability?

Answer 3

Contractual obligation to pay cash

Question 4

Equity?

Answer 4

Residual interest within asset after deducting liabiltiy (what equity shareholder owns)

Question 5

If there’s contractual right to pay cash?

Answer 5

Financial liability

Question 6

If there isn’t a contractual right to pay cash?

Answer 6

It is equity

Question 7

What does a credit sale (receivable) and credit purchase (payable) give rise to?

Answer 7

A financial instrument

Question 8

What is a receivable?

Answer 8

Due money from customer

Question 9

What is a payable?

Answer 9

Contractual right to deliver cash

Question 10

If we issues shares?

Answer 10

We give people who we issue shares to their share of net assets. Net amount is equity

Investor has an asset as they have an investment in company’s shares

Question 11

Double entry for issuing shares?

Answer 11

Debit Bank
Credit Nominal shares
Credit Share premium

Question 12

Double entry for issuing debt (us)?

Answer 12

Debit Bank
Credit Debentures/Loan stock

Question 13

What is a debenture?

Answer 13

A financial liabiltiy, as obligation to pay cash

Question 14

If we issues debt?

Answer 14

We are looking to raise finance. They have an obligation to pay cash

Other company is providing finance to us. They have a financial asset

Question 15

Double entry for issuing debt (other company)?

Answer 15

Debit: Investment in debt
Credit: Bank