Statement of financial position

Question 1

What is a balance sheet

Answer 1

Financial statement which shows the value of a business’ assets, liabilities

Question 2

What are assets

Answer 2

Current:Items owned and used by the business within a year ( stocks, cash)
Non current:Items owned by the business for more than one year (Buildings, machines)

Question 3

What are liabilities

Answer 3

Debts owed by the business
Current Liabilities – Money owed by the business which must be repaid within a year. e.g. Bank overdraft, creditors
Non-current Liabilities – long-term borrowings which do not have to be repaid within a year. e.g. Long term bank loans,

Question 4

How do you interpret a balance sheet

Answer 4

How a business is financing its activities - Business expansion can be funded by increasing non-current liabilities e.g. long-term loans, or through increasing shareholder’s equity

What asset a business owns - Can be seen from the assets section of the balance sheet

Sale of inventory to raise finance - If this occurs then inventory (stock) would decrease on the balance sheet