Assets
What are assets?
These are valuable resources owned by a business.
What are liabilities?
These are amounts that a business owes.
What is working capital?
This is the amount left when current liabilities are deducted from current assets.
What is a Balance Sheet?
This financial statement shows what a business owns and owes at a specific date.
Who is the primary internal user of a sole trader's financial statements?
The Owner (or Sole Trader)
What are current assets?
This type of asset is expected to be used, sold, or converted into cash within a short period.
What is a trade receivable (debtor)?
This is money that customers owe the business.
What is formula for calculating working capital?
Current Assets – Current Liabilities?
What are the three main sections of the balance sheet?
Assets, Liabilities, and Owner's Equity
What is the formal name for the report that shows profit or loss?
The Income Statement (or Statement of Profit or Loss)
What are non-current assets?
This type of asset is purchased for continued use in the business and is not expected to be converted into cash quickly.
What is a trade payable (creditor)?
This is money that the business owes to suppliers.
If current assets are $50,000 and current liabilities are $30,000, what is the working capital?
$20,000
What is "Financed By"?
This section of the Balance Sheet shows the owner's investment and non-current liabilities.
Who are the external users that want to know if the business can pay its debts on time?
Creditors (or Suppliers, or Lenders)
What is the name for the cost of inventory that a business has sold to its customers?
Cost of Goods Sold (COGS)
What are current liabilities?
Trade payables and bank overdraft are examples of this type of liability.
If current assets are $80,000 and current liabilities are $100,000, what is the working capital?
-$20,000 (negative 20,000)
What is the formal statement showing the changes in owner's equity over a period called?
Statement of Changes in Owner's Equity
Financial statements are prepared according to what rules and guidelines?
Accounting Standards (or GAAP — Generally Accepted Accounting Principles)
A business has cash of $5,000, inventory of $12,000, equipment of $40,000, and vehicles of $25,000. What is the total value of its non-current assets?
$65,000 (Equipment $40,000 + Vehicles $25,000)
What is a non-current liability?
A long-term loan is an example of this type of liability.
What does a negative working capital indicate about a business?
The business may struggle to pay its short-term debts (poor liquidity)
If Owner's Equity is $80,000 and Liabilities are $30,000, what are the total Assets?
$110,000
What is the main reason a bank would ask to see a sole trader's financial statements?
To assess creditworthiness (or to see if the business is a good loan risk)