statement of financial position Flashcards
what is a statement of financial position
a summary of the business’s assets and liabilities at a specific time
what are assets
resources used or owned by the business
what are liabilities
debts that provide funds for the business
what are current assets
assets that last less than a year and can be easily converted into cash
what is capital
finance provided by the owners of the business
what is liquidity
the ease with which an asset can be converted into cash
what are non-current assets
assets that last in the business for more than a year
what are current liabilities
debts that must be paid within a year
what are non-current liabilities
debts that are due after more than a year
how are net assets calculated
net assets = total assets − total liabilities
what is goodwill
the value of a company from its good relationships with customers and suppliers
what is working capital
the liquid resources available to meet the running costs of the business
what is the purpose of a statement of financial position
to determine the value of net assets and assess the business’s ability to continue operating
what are the features of non-current assets
assets that last more than a year in the business
what are the features of current assets
assets that can be easily converted into cash, like inventory, trade receivables, and cash
what are examples of current liabilities
trade payables, bank overdrafts, and taxes
how are net current assets calculated
net current assets = current assets − current liabilities
what do net current assets indicate
the working capital of the business; a shortage may cause cash flow problems
what are examples of non-current liabilities
loans and mortgage payments due after more than a year
what is shareholder’s equity
the money contributed by owners, including retained profit and other reserves
what is capital employed
the total money owners have invested in the business
how is the statement of financial position used
to evaluate the business’s financial position and estimate its value
what are the challenges of interpreting the statement of financial position
estimating asset values accurately, accounting for non-physical assets like goodwill
