FINANCIAL STATEMENTS WEEKS 3&4

Question 1

types of financial statement

Answer 1

statement of financial position
income statement
statement of cash flow
statement of changes in equity

Question 2

basic accounting equation for the financial position

Answer 2

assets=liabilities+equity

Question 3

what are assets made up of

Answer 3

CASE
cash,accounts receivable,supplies,equipment

Question 4

what are liabilities made up of

Answer 4

accounts payable,share capital

Question 5

what is equity made up of

Answer 5

retained earnings (revenue-expenses-dividends)

Question 6

retained earnings

Answer 6

revenue-expenses-dividends

Question 7

define assets

Answer 7

owned resources
cash,inventory,equipment,trade receivable

Question 8

define liabilities

Answer 8

money owed (debts,wages payable)

Question 9

define equity

Answer 9

ownership claims on total assets (net worth of business) eg retained earnings, share capital, investments by shareholders increases equity

Question 10

what do income statements show

Answer 10

net profit

Question 11

accrual concept

Answer 11

accounting year with split time periods
revenue/costs recognised when incurred not when the money is paid, eg if you pay for electricity after 5 months but the financial year ends in 3, you calculate the cost for 3 months

Question 12

cash basis accounting

Answer 12

revenue+costs are recognised as cash is paid

Question 13

what part of the financial statement do accruals belong in

Answer 13

liabilities as the expense has not been paid yet

Question 14

what does cost of sales refer to

Answer 14

direct costs incurred for goods sold

Question 15

what are operating expenses

Answer 15

all other expenses (rent,wages)

Question 16

straight line depreciation

Answer 16

loss of value spread evenly (depreciating the same amount each month)

Question 17

estimated residual value

Answer 17

value after depreciation

Question 18

reducing balance depreciation

Answer 18

normal depreciation (power of whatever) just write it out

Question 19

bad debt

Answer 19

not being able to pay back debt (expense to the business)

Question 20

trade receivables

Answer 20

money owed that hasn’t been received yet eg installments

Question 21

cash equivalent

Answer 21

can be converted into cash within 3 months

Question 22

statement of cashflows

Answer 22

movements on money that may not have been received yet

Question 23

operating cash inflows/outflows

Answer 23

direct (shows cash only transactions)
indirect (summary of cash movements)

Question 24

how would you find indirect cash inflows/outflows

Answer 24

start with net income
cancel non cash transactions (accounts receivable)
cancel changes in capital
cancel other cash eg interest

Question 25

financial position table

Answer 25

ASSETS (CASE)= LIABILITY + EQUITY (ACE) cash, accounts receivable, supplies, equipment accounts payable, share capital, retained earning (rev-expenses-dividends)

Question 26

cash flow types (must be in order)

Answer 26

cash flows from... operating investing financing net increase in cash cash at beginning of period cash at end of period

Question 27

operating

Answer 27

income statement activities (sales of goods, interest/dividends, paying labourers, tax etc)

Question 28

investing

Answer 28

sale from property etc investments in debt

Question 29

financing

Answer 29

changes in non-current liabilities and equity sale of ordinary shares/bonds redeeming long term debt