Statement of financial position

Question 1

How does a balance sheet help a business?

Answer 1

• know how much its worth
• know what they own and what they owe

(only valid for the day it is written)

Question 2

What does a balance sheet show?

Answer 2

• assets (what a business owns and owed to it)
• liabilities (what the business owes)
• capital (how the business is funded.

Question 3

What are the two types of assets?

Answer 3

• Fixed assets (long term)

- Current assets (short term)

Question 4

Example of fixed assets:

Answer 4

• building and machinery

- can’t be turned into cash easily

Question 5

How do fixed assets show up on a balance sheet?

Answer 5

• Can be shown as cost (price originally paid)

- Net value (cost with depreciation deducted)

Question 6

Define depreciation

Answer 6

the loss in value of an asset overtime.

Question 7

Example of current assets:

Answer 7

• money owed to the business (trade receivable or debtors), cash and stock.

Question 8

Current assets :

Answer 8

• change all the time: stock levels go up and down depending on sales and production
• known as liquid assets (means they can be sold quickly)

Question 9

What is a liability?

Answer 9

what a business owes to others.

can be categorised as current and or long term

Question 10

Example of current liability:

Answer 10

• short-term debts that must be paid of quickly (within a year)
• a credited (someone the business owes money to)
• business suppliers could be creditors. business might owe money for purchases it has previously made.
• value of current liabilities is always changing
• found at the top of balance sheets after fixed and current assets.

Question 11

Example of long term liabilities:

Answer 11

• usually take over one year to pay off
• like bank loans and mortgages
• found in external capital section of balance sheet – shows how a business has been funded.

Question 12

what does the capital section of a balance sheet show?

Answer 12

• where a business gets its money from

Question 13

What are the two types of capital?

Answer 13

• Internal: money raised from within the business

- External: money that has been borrowed outside of the business and must be paid back.

Question 14

Examples of internal capital:

Answer 14

• share capitals (shareholders invest money into the business) and profit has been reinvested into the business.

Question 15

Examples of external capital:

Answer 15

• a bank loan.