The Balance Sheet Flashcards
What are the five accounting things?
- Assets
- Liabilities
- Capital or Equity
- Income
- Expenses
What are Assets?
What is owned and controlled and will create future benefit.
What are liabilities?
What is owed to others.
What is capital?
Investment from shareholder or owner
What is the income?
The revenue from the goods sold or services provided.
What are the expenses?
Cost of day-to-day operations of the business.
What of the five accounting things are shown in the balance sheet?
Assets, Liabilities and Capital.
What does the balance sheet show?
The financial position of a business ata certain point in-time.
What are Assets and Liabilities split into?
Non-current Assets and current assets.
Non-current Liabilities and current liabilities.
How is the working capital calculated?
Current Assets - Current Liabilities
What is the balance sheet important for?
Interpretating financial statements.
What are intangible assets?
Non-current, non-physical. For example; Goodwill, patents, trademarks, licences.
What are tangible assets?
Non-current physical assets. For example; Vehicles, buildings, machinery, equipment.
What is depreciation in accounting terms?
Expensing the cost of a non-current asset over its useful life.
What are the two methods of depreciation?
- Straight line method
- Reducing balance method
What happens in the straight line method of calculating depreciation?
There is an equal amount charged every year.
What happens in the reducing balance method of depreciation?
The amount decreases every year.
How is the depreciation method decided?
A judgement by the managers.
Where is the depreciation policy found?
In the notes of the financial statement.
What does depreciation affect?
Both the profit/loss and the reported asset value.
What is working capital?
Short term capital that is working day-to-day.
How is the working capital calculated?
Current assets - Current Liabilities
What are the inventories?
The good the business owns and hopes to sell; raw materials, Works in progress, and finished goods however some companies may only have finished goods.
What are trade receivables (debtors)?
Customers (individual or a business) who have purchased goods but are still yet to pay.
What is liquidity?
The ease of converting an asset into cash, the cash itself being the most liquid asset of all.
How are trade receivables presented?
In reverse order of liquidity, how difficult it is to convert it into cash.
How do bad debts come about?
When customers don’t pay their bills (refuse or go bankrupt)
What do bad debts become in the IS and the balance sheet?
An expense in the income statement. A reduction to receivables in the balance sheet.
How might businesses prepare for bad debts?
Managers may set up a provision for doubtful debts. A cushion to absorb any future bad debts.
What is a prepayment?
A prepayment is owed to a business and is a current asset.
Where are the prepayments shown in the balance sheet?
Within the Other current assets
Is cash subjective?
Yes, for example exchange rates in foreign countries.
What is the accounting standards definition?
Short-term, highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.
What is a current liability?
An amount that is due to be paid within one year.
What are different types of creditor?
Employee, Supplier, Bank
What are trade payables?
Money that is owed for the supplies of goods and services used in day-to-day operations.
What kind of liability is a bank loan?
A non-current liability.
What are overdrafts?
Semi-permanent (effectively a long term loan) but the bank may request repayment at short notice.
What are the accruals in the Balance sheet?
The day-to-day bills still owing at the end of the year.
What items are deducted on the balance sheet?
Current liabilities
