Financial Transaction & Statement Of Financial Position

Question 1

What does a statement of financial position tell us?

Answer 1

Tells us the accumulated wealth of the business and the form it takes

Question 2

What does the income statement tell us?

Answer 2

How much wealth is generated over time?

Question 3

What does the statement of cash flow tell us?

Answer 3

The cash movements that took place

Question 4

What does the statement of changes in equity tell us?

Answer 4

The changes in capital

Question 5

Equity equation

Answer 5

Equity = Assets - Liability

Question 6

What is an asset?

Answer 6

• Resources a business owns or controls
• Provide future services or benefits
• An asset of inventory is a good or item of value that a company plans to sell for profit

Question 7

What are liabilities?

Answer 7

• Debts, obligations
• Creditors
• e.g. trade payable…

Question 8

What is equity?

Answer 8

• shows the amount that is owned by shareholders and the accumulated profit
• equity = net worth of the business

Question 9

What are retained earnings?

Answer 9

• the accumulation of profit over a period of time
• the company can pay dividends (the return shareholders get) with retained earnings

Question 10

What is included in the statement of financial position?

Answer 10

1. Assets
   a) cash, accounts receivable, inventory…
2. Liabilities
   a) accounts payable, long term loans, accrued expensive
3. Equity
   a) share capital, share premium, retained earnings, reserves

Question 11

Which financial statement shows the changes of capital over time?