Major Financial Statements

Question 1

What are the two major financial statements

Answer 1

1. Statement of financial position

2. Income statement

Question 2

What is the statement of financial position

Answer 2

What we own vs what we owe (Balance Sheet)

Question 3

What is the income statement

Answer 3

What sales we have made vs what expenses we have. e.g. Electricity. (Profit vs Loss)

Question 4

What are assets

Answer 4

What the company OWNS, such as motor vehicles, property etc

Question 5

What are claims

Answer 5

What the company OWES

Question 6

What are two types of claims

Answer 6

1. Equity - claims by the owner

2. Liabilities - claims by other individuals and organisations (except the owners) (owe money to that are not owners)

Question 7

What are the two different types of assets

Answer 7

1. current asssets

2. non-current assets

Question 8

What are current assets

Answer 8

Cash is the truest current asset. Money that can be spent straight away. Anything that can be transferred into cash within a YEAR. e.g. Inventory, Money owed etc

Question 9

What are non-current assets

Answer 9

A non current asset is acquired by the business to generate income over a considerable period. e.g. Building, Company car, Manufacturing line.

Question 10

What are the two different types of claims

Answer 10

1. Current liabilities

2. Non-current liabilities

Question 11

What are current liabilities

Answer 11

Amounts payable within one year. e.g. Overdraft, debts owed to suppliers for goods, accrued expenses

Question 12

What are non-current liabilities

Answer 12

Amounts payable in more than one year. e.g. Long term loan, mortgage, lease

Question 13

What is equity

Answer 13

What is owed to the owners

Question 14

When do we talk about equity

Answer 14

when discussing a limited company

Question 15

When do we talk about capital

Answer 15

When discussing a sole trader

Question 16

What is the layout of the income statement

Answer 16

Sales Revenue
- Cost of sales
= Gross profit
\+ other income
- Expenses
= Operating profit 
\+ or - Net finance charges

= Profit for the period

Question 17

What are direct costs

Answer 17

Costs that are linked directly to the product or service

Question 18

What are examples of direct costs

Answer 18

1. Direct materials
2. Direct labour
3. Direct overheads

Question 19

What are indirect overheads

Answer 19

Costs that keep the business running on a day to day basis. Expenses NOT assets

Question 20

What are examples of indirect overheads

Answer 20

Administration costs, rent, rates, insurance, heat and light, petrol, maintenance costs, miscellaneous costs, depreciation

Question 21

What is the layout of the statement of financial position

Answer 21

1. Assets at the top, starting with non-current assets

2. Bottom half is equity and liabilities, starting with non-current liabilities.