Unit 3 - Business Finance (Financial Documents)

Question 1

Statement of comprehensive income

Answer 1

A statement of comprehensive income is a financial document showing a firm’s income and expenditure in a particular period.

Question 2

Statement of comprehensive income

Answer 2

This shows:
- Sales revenue
- Costs of goods sold
- Gross profit
- Expenses
- Operating profit
- Interest
- Exceptional items
- Profit for the year

Question 3

Sales revenue

Answer 3

• Money coming in from sales
• Quantity sold x selling price

Question 4

Cost of good sold

Answer 4

• Costs directly linked to the production of goods or services sold e.g. raw materials.
• Opening inventory - closing inventory

Question 5

Gross profit

Answer 5

Sales revenue - cost of sales

Question 6

Expenses

Answer 6

All other costs associated with the trading of the business e.g. salaries and marketing expenditure.

Question 7

Operating profit

Answer 7

Gross profit - expenses

Question 8

Interest

Answer 8

Interest paid on debts or received on positive balances.

Question 9

Exceptional items

Answer 9

One off items of income e.g. from the sale of an asset

Question 10

Profit for the year

Answer 10

Operating profit - Interest (tax is still to be deducted)

Question 11

Impact on making decisions

Answer 11

• Investment decisions
• Cost analysis
• Future forecasting
• Making comparisons

Question 12

Statement of financial position

Answer 12

A statement of financial position is a summary of a business’s assets, liability, and capital at a specific point in time. It is commonly known as a balance sheet.

Question 13

Assets

Answer 13

Assets are resources used or owned by a business such as cash, stock, machinery, tools and equipment.

Question 14

Liabilities

Answer 14

Liabilities are debts of the business, which provides a source of funds.

Question 15

Capital

Answer 15

Capital is finance provided by the owners of the business.

Question 16

Features

Answer 16

• Non-current assets is assets that last for more than a year
• Current assets are assets likely to be changed into cash within a year
• Current liabilities are debts that need to be repaid within a year
• Net current assets are current assets minus current liabilities (working capital)
• Non-current liabilities are debts payable after 12 months
• Net assets is all assets minus all liabilities
• Shareholder equity shows the money that is owed to the owners
• Capital employed shows the amount of money the owners have invested

Question 17

Interpreting the statement of financial position

Answer 17

A statement of financial position shows the financial position of a business at a certain point in time.
- Value of all business assets, capital and liabilities
- Asset structure of a business, which means how the money raised by the business has been spent on different types of asset
- Capital structure of a business, which is an analysis of the different types of funding the business has used
- Value of net current assets, which is how much working capital a business has - indicating whether a business has enough liquid resources to pay its immediate bills.