Statement of Financial Position Flashcards
What period does a statement of financial position show?
A day
What is the formula for working capital?
current assets - current liabilities
What are current assets?
Current assets are items that the business owns but will be used within a year such as cash in the bank, stock or trade receivables.
What are trade receivables?
Trade receivables are payments owed to the business from customers. It can also be called debtors.
What are trade payables?
Trade payables are people you owe money to such as suppliers. They can also be called creditors.
What are fixed assets?
These are items that the business owns for longer than a year such as a computer, a van or machinery and buildings.
What are current liabilities?
These are items that the business owes and will need to be repaid within a year such as trade payables or an overdraft.
How do you calculate total assets?
Fixed assets add current assets
Which two figures must be the same on a statement of financial position?
Total assets less current liabilities must equal shareholders funds.
What is capital?
Capital is the money that is put into the business such as money invested by owners or shareholders or retained profit.
What is a dividend?
A payment to shareholders for their investment into the business.
Why would a low working capital be a worry?
It needs to be increased to ensure that the business can repay the bank and its suppliers and be able to cover any emergencies.
How do I improve a business’ statement of financial position?
Look at stock: too much, sell it off; too little, buy some more
Trade receivables: if this is high then collect payments from debtors, send reminders, offer early payment discount
Cash: if this is low, cash up debts or sell off slow-moving stock
Trade Payables: if debts to suppliers are too high they might stop providing raw materials
Overdraft: banks charge for this so pay it off as soon as possible
What is retained profit?
Earlier profits the owner has kept in the business; an internal source of capital
