Financial Statements

Question 1

Depreciation

Answer 1

The reduction in value of an asset over time, usually due to wear and tear.

Question 2

Accrual

Answer 2

An accrual is the term used for when a business uses an asset, but is yet to pay for it, for example electricity.

Question 3

Prepayments

Answer 3

A prepayment is the term used for when a business pays for an asset, but is yet to use it, for example car insurance.

Question 4

Carriage Inwards

Answer 4

Represents the cost of bringing raw material goods into the business.

Should be added to COST OF SALES on an income statement.

Question 5

Carriage Outwards

Answer 5

Represents the cost of delivering finished goods to customers.

Should be shown as an EXPENSE on an income statement.

Question 6

Discounts Allowed

Answer 6

Discounts which are given to customers.

Should be shown as an EXPENSE on an income statement.

Question 7

Discounts Received

Answer 7

Discounts given to the business from suppliers.

Should be shown as OTHER INCOME on an income statement

Question 8

Returns Inwards

Answer 8

Goods returned to the business, possibly because they are faulty.

Should be shown UNDER TURNOVER on an income statement, and be taken away.

Question 9

Returns Outwards

Answer 9

Goods which a business returns to suppliers.

Should be taken away from COST OF SALES on an income statement.

Question 10

Rents Receivable

Answer 10

A type of income not part of normal trading income.

Should be shown as OTHER INCOME on an income statement.

Question 11

Working Capital

Answer 11

The excess of current assets over current liabilities owned by the business.