Topic 2: Financial statements

Question 1

Why is preparing an income statement usefull?

Answer 1

The Income Statement calculates the profit for the year. Knowing what profits are being made helps businesses to do many things, including:

                    Evaluation of performance (comparison with competitors, previous 
                    years, the budget)

                    Planning ahead

                    Obtaining loans from banks

                    Telling prospective business partners how successful the business is    
                                                                 
                    Telling prospective business buyers how successful the business is 
                                            
                     Calculating the tax due on the profits.

Question 2

What are NON-CURRENT ASSETS?

Answer 2

Assets bought for use in the business and not with the purpose of resale. Have a long life (expected to be used for a long time /over 1 year).

Question 3

What are CURRENT ASSETS?

Answer 3

short-life assets that tend to change in value in the short run (within 12 months of the Statement of Financial Position date).

Question 4

What are NON-CURRENT LIABILITIES?

Answer 4

obligations which have to be paid within 1 year from the Statement of Financial Position date (Short Term).

Question 5

What are CURRENT LIABILITIES?

Answer 5

obligations which have to be paid more than a year after the Statement of Financial Position date. E.g., 5-year loan, mortgage.