Wk 2 Statement of Financial Position (balance sheet)

Question 1

What does the statement of financial position show?

Answer 1

Lists assets, liabilities, and equity of an organisation as of the report date - provides a snapshot of the financial condition of a business

Question 2

What is the basic accounting equation?

Answer 2

Liabilities + equity = assets
Each transaction has a dual effect on this equation

Question 3

What do assets include?

Answer 3

Cash, inventory, equipment, trade receivable etc

Question 4

What do liabilities include?

Answer 4

Claims against assets (debts and obligations), creditors (party to whom money is owed), accounts payable, share capital (money raised by issuing shares)

Question 5

What is equity?

Answer 5

Retained earnings - the ownership claim on total assets, net worth of the business - dividends to shareholders decrease the equity of the business and also reduce retained earnings

Question 6

What is the equation to calculate the profit for the year?

Answer 6

Revenue - expenses = profit for the year

Question 7

When should a transaction be recorded?

Answer 7

If the financial position (assets, liabilities, or stockholder’s entity) of the company has changed