Wk1 Intro to statements, concepts and the accounting equation

Question 1

What components make up the Balance Sheet (SOFP)?

Answer 1

• How much is owned
• How much is owed
• Equity/ capital

Question 2

What components make up the Income Statement?

Answer 2

• How much was earned (income/ revenue/ sales)
• How much was spent (purchases/ expenses)

Question 3

Describe what Non-current Assets are and give examples:

Answer 3

Non-current assets are assets which are to be owned for longer than 12 months e.g. buildings, furniture, machinery, motor vehicles

Question 4

Describe what makes an asset ‘current’ and give examples:

Answer 4

Current Assets are cash or cash equivalents. They are owned at the date but to be used by the business for profit in the next 12 months e.g. Inventory/ stock, trade receivables, prepayments

Question 5

Describe what is meant by Liabilities in financial accounting:

Answer 5

An obligation of an entity arising from a past event the settlement of which involves the transfer of resources - an amount owed by the business

Question 6

Describe what is meant by a Non-current Liability and give an example:

Answer 6

The payment of the liability is due after 12 months e.g. Bank loan repayable in 2/3/4… years

Question 7

Describe what is meant by a Current Liability and give an example:

Answer 7

The payment of the liability is due within the next 12 months e.g. Amounts owed to suppliers or HMRC

Question 8

Describe what is meant by Capital in Financial Accounting:

Answer 8

Capital represents the amount owed by the owner of the business. It is made up of:
- Investment in the business
- Items removed from the business
- Profits earned by the business

Question 9

What is the Accounting Equation?

Answer 9

ASSETS = LIABILITIES + CAPITAL

Question 10

Explain the Duality/ Double Entry Principle:

Answer 10

In order to keep the accounting equation in balance, each transaction is recorded twice; being a debit in one and a credit in another Bank a/c.