Lecture 2 - Statement of Financial Position and Statement of Financial Performance

Question 1

What is the accounting equation

Answer 1

assets= equity + liabilities

Question 2

Effect of trading transaction on accounting equation

Answer 2

assets= equity +(-) profit (loss) + liabilities

Question 3

Recording trading transaction

Answer 3

assets + expenses = equity + revenue + liabilities

Question 4

What does the statement of financial position list

Answer 4

current/ non current assets and current/ non current liabilities

Question 5

What is a current asset

Answer 5

An asset held for sale or consumption during the business’s operating cycle. it is expected to be sold within a year

Question 6

What are the three main current assets

Answer 6

cash, inventories and trade recievables

Question 7

What is a non current asset

Answer 7

a fixed asset held within the business for a long period of time

Question 8

What are the seven main non current assets

Answer 8

• plant
• property
• fixture and fittings
• equipment
• machinery
• motor vehicles
• intangible assets

Question 9

What is a claim

Answer 9

an obligation of a business to provide cash, or another benefit, to an outside party

Question 10

What are the two types of claim

Answer 10

equity and liabilities

Question 11

What is a current liability

Answer 11

a liability expected to be settled within business’s normal operating cycle, within a year of the financial position date

Question 12

What is a non current liability

Answer 12

Does not meet definition of current liabilities and a long term obligation (bank loan)

Question 13

What is the standard layout of the accounting equation

Answer 13

NCA + CA = Equity + NCL + CL

Question 14

What is the non standard layout of the accounting equation

Answer 14

NCA + CA - CL - NCL = Equity

Question 15

Three types of intangible asset

Answer 15

• Goodwill and Brands
• Human Resources
• Monetary Stability

Question 16

What are the uses of the statement of financial position

Answer 16

• show ho the business is financed and how funds are deployed
• provide basis for assessing the value of the business
• assess relationship between assets and claims
  -assess performance

Question 17

Equation for profit (or loss) for the period

Answer 17

profit (or loss) for the period = total revenue for the period - expenses incurred

Question 18

What is the layout of the income statement (8 steps)

Answer 18

1. sales revenue
2. cost of sales
3. gross profit
4. operating expenses
5. operating profit
6. interest payable
7. interest received
8. profit for the period

Question 19

What are the two uses if the income statement

Answer 19

• how effective the business has been in generating wealth
• how the profit was derived

Question 20

What are the five accounting conventions

Answer 20

• business entity convention
• historic cost convention
• prudence convention
• going concern convention
• dual aspect convention