Week 3 Flashcards
What is the relationship between the Income Statement and Balance Sheet ?
The Income statement explains the change in equity that arises from operating activities
The Income Statement is also known as
The statement of financial performance
What is the purpose of the income statement?
To measure and report how much profit (wealth) the business has generated over a period.
What is Income made up of?
Revenue & Gains
What is an asset?
An asset is a resource held by a business which has certain characteristics.
What is a resource held by a business which has certain characteristics?
An Asset.
What is a tangible asset?
Those assets that have a physical substance (e.g. plant and machinery, motor vehicles).
What is being described? Those assets that have a physical substance (e.g. plant and machinery, motor vehicles).
A Tangible Asset.
What is the purpose of the statement of financial position?
The purpose is to set out the financial position of a business at a particular point in time.
What is the statement of financial position also referred to as?
Balance sheet.
Both terms ‘statement of financial position’ and ‘balance sheet’ have been used in recent years. Which term is recommended to be used currently?
Statement of Financial Position.
What is an intangible asset?
An asset which while providing expected future benefits, have no physical substance (e.g copyrights, patents).
What is a claim?
An obligation on the part of the business to provide cash or some other benefit to an outside party.
What are the main characteristics of an asset?
- Probable future economic benefit
- The business has an exclusive right to control the benefit
- The benefit must arise from some past transaction or event
- The asset must be capable of reliable measurement in monetary terms.
What is a liability?
A liability is the claim of individuals and organisations, apart from the owner(s), that have arisen from past transactions or events, such as supplying goods or lending money to the business.
What is ‘owner’s equity’?
The claim of the owner(s) on the assets of the business.
There are two types of claims on assets. What are these types?
Liabilities
Owners Equity or Capital
True or False. If I borrow money from the bank and need to pay that money back, this is called a liability.
True.
What is a provision?
A provision is an estimated liability for which there is greater uncertainty regarding the amount or timing of the amount than for normal liability.
What is contingent liability?
Contingent liability is a potential liability that might arise in the event of a particular event occurring. It will become a liability contingent on that event happening.
What is the statement of financial performance traditionally called?
Income statement
OR
Profit and loss account.
What is being described?
‘Increases in economic benefits for the accounting period in the form of inflows of assets or decreases in liabilities that result in increases in equity, other than those relating to ownership contributions’.
Income.
