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Accounting 1 > Statement of Financial Position > Flashcards

Statement of Financial Position Flashcards

1
Q

statement of financial position can also be called

A

balance sheet

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2
Q

sofp is a summary of what

A

assets an organisation controls

liabilities an organisation owes to outside parties

equiites

at a certain point in time, snapshot, would be different had it been taken another time

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3
Q

define an asset

A

a present economic resource controlled by the entity as a result of past events

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4
Q

4 requirements to be an asset

A

control
a result of past events
present
economic benefits

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5
Q

what does the ‘control’ condition mean for an asset

A

the resource must be owned or leased by and entity

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6
Q

what does the ‘result of past events’ condition mean for an asset

A

the company signed a contract or paid money to acquire the right to an asset

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7
Q

what does the ‘present’ condition mean for an asset

A

the resource must be under the entity’s control at the statement of financial position date

ie no future agreements can be included

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8
Q

what does the ‘economic benefits’ condition mean for an asset

A

resources will be used to generate profits and cash

future monetary value

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9
Q

example of intangible assets

A

patents and trade marks

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10
Q

is a new marketing director who is expected to increase profits by 30% an asset? why or why not?

A

no

do not have control over him/her

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11
Q

define a non current asset

A

not purchase to be resold in the normal course of business

retained within the business for more than one year

held for the lonf term for the business to use in produce of goods or services

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12
Q

example of non current assets

A

property, pant and equipment, buildings, vehicles, computer, fixtures and fittings

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13
Q

define current assets

A

short term assets which are constantly changing

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14
Q

examples of current assets

A

inventory
trade receivables
cash and cash equivalents

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15
Q

how to distinguish between non current and current assets

A

time (< or > 1 year)

depends on busines in which an entity is engaged

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16
Q

example of how current and non current assets can differ between businesses

A

DPD vehicles are a non current asset as they are used to carry out work

BMW vehicles are a current asset as they will be reols within the year

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17
Q

define liability

A

a present obligation of the entity to transfer an economic resource as a result of past events

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18
Q

what does ‘present obligation’ mean in the definition of liability

A

must exist at date of SOFP

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19
Q

what does ‘economic resource’ mean in the definition of liability

A

transfer of cash to an outside party

20
Q

what does ‘as a result of a past event’ mean in the definition of liability

A

eg as a result of borrowing money which now has to be repaid

21
Q

what is a non current liabilty

A

due for settlement in more than 12 months

22
Q

examples of non current liabilties

A

loans >1 year
retirement benefits
long term provisions

23
Q

what is a current liabilty

A

due for settlement within the next 12 months

24
Q

examples of current liabilities

A

bank overdrafts
installments in long term loans
trade payables
tax payables

25
Q

what are trade payables

A

amounts due to supplier for good bought on credit

26
Q

what is a claim

A

an obligation of the business to provide cash to some outside party

27
Q

what is the accounting equation

A

total assets = total liabilities + equity

or

total assets - total liabilities equity

these two should balance on sofp

28
Q

define equity

A

the residual assets of the entity after deducting all its liabilities

ie all the cash that would be left after the assets were sold and liabilities settled (paid off)

29
Q

who does equity belong to

A

owners of business

30
Q

what is equity made up of

A

share capital
share premium
retained earnings

31
Q

what is share capital

A

number of shares in the issue x par value of each share

32
Q

what is the par value

A

face or normal value

33
Q

what is share premium

A

amount received on shares issues over and above the par value

34
Q

what are retained earnings

A

profits of the business not yet issued to shareholders as dividends

35
Q

what are dividends

A

paymnets to shareholders out of the earnings made

36
Q

4 steps to drawing up the sofp

A
  1. decide what is an asset, liability and equity
  2. categorize assets and liabilities as current or non current
  3. add together balances
  4. enter balances under relevant headings
37
Q

how are assets and liabilities usually valued

A

historic cost ie original cost

38
Q

what are the two ways of valuing assets and liabilites

A

historic cost

fair value

39
Q

what is the fair value

A

the price that the asset/liabiility would be sold on the market today

40
Q

when is fair value ofetn used

A

for land and buildings

41
Q

problems with using historic cost

A

get more and more out of date meaning it becomes less relevant for decision making

mixing historic and fair values can lead to confusion for users

42
Q

what does sofp not show

A

unmeasurable assets eg employee knowledge and skills, brands and traditions

unmeasurable liabilities eg environmental damage, claims not known bu year end

market value of the organisation

43
Q

what is the market value of the organisation

A

what a third party woulf pay to acquire the organisation

44
Q

how is sofp useful to users

A
  • info on how business is financed and how funds are deployed
  • asses value of the bueiness
  • asses relationships between asset and claims
  • performance of business can be assesed
45
Q

what does dual aspect mean

A

2 account balances will be effected by the same transaction

Accounting 1 (10 decks)

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