Week 4 -Balancing The Basics Flashcards
What are the three financial statements?
Statement of profit or loss
Statement of financial position
Statement of cash flows
What is meant by an asset?
This is something that the business owns that will bring financial benefits to the business in the future
What is a liability?
This is an amount owned by the business where the business has an obligation to make a payment
What are the two types of assets?
Non-current assists (long-term assets (like a car)) Current assets (short term assets, that will be held by the business (like inventory))
What are current liabilities?
These are amounts that are due to be paid within a year, including amounts owed to suppliers
What are non-current liabilities?
These are amounts that are due to be paid after a year, including long-term loans.
What is a accrual?
A accrual arises where an expense has been incurred but not paid for by the date when the stat,end of financial position is prepared.
What is a prepayment?
This arises where an expense has been paid before the statement of financial position date but the benefit of that expense will be experienced in the following financial year.
How to do account for an accrual?
Calculate the expense to be included in the statement of profit or loss by taking the trial balance figure for the expense concerned and adding on the amount of the accrual.
Remember to include the accrual as a current liability on the statement of financial position
How do you calculate a repayment?
Calculate the expense to be invalided on the income statement by taking the trial balance figure for the expense concerned and deducting the amount of the prepayment
Must also include the prepayment as a current assets on the statement of financial position
What is meant by historic- cost concept?
This requires transactions to be recorded at their original cost to the business and as a result, the assets of a business are included at their historic cost on the statement of financial position.
What does the going-concern concept mean?
When producing accounts, there is an assumption that the business will continue to operate for the foreseeable future unless there is any evidence to suggest that it will not
What is a statement of financial position?
A statement of financial position is a snapshot of the business’s assets and liabilities at one point in time. It also shows how much is invested in the business.
