Assets, Liabilities & Finance
What is a current asset?
A present economic resource that is expected to be sold, consumed or converted into cash within 12 months after the end of the reporting period.
What are variable costs?
These costs change directly with changes in production volume.
What is comparability?
Useful information is provided when the financial reports of a business can be compared over time and with similar information from other businesses.
What is the entity assumption?
This accounting assumption states that the records of assets, liabilities and business activities of the entity are kept separate from those of the owner and other entities.
Name two aspects of ethical employment that a socially responsible business should ensure.
various
What is a current liability
Obligations expected to be settled within 12 months are called these liabilities.
Give two examples of variable costs
Various
What is verifiability?
This qualitative characteristic helps to assure users that financial information faithfully represents what it claims because different knowledgeable and independent observers can reach the same conclusion.
What is the accrual basis assumption?
This accounting assumption requires that revenues are recognised when earned and expenses when incurred, so profit is determined by matching revenues and expenses in the same reporting period instead of when cash is received or paid.
Why is property considered a relatively illiquid investment compared to shares?
Property is harder to sell
Explain how a non‑current asset differs from a current asset.
Non-current assets are resources expected to be used by the business for years and not held for resale, whereas current assets are expected to be sold, consumed or converted into cash within 12 months.
What are fixed costs?
These costs do not change with production volume.
What is timeliness?
Financial information should be made available to decision-makers in time to influence their decisions.
What is the going concern assumption?
This accounting assumption presumes that a business will continue operating into the foreseeable future and will not be forced to liquidate, allowing assets and liabilities to be reported at cost rather than liquidation value.
What videogame came out today that I really want to play when I get home?
Resident Evil Requiem
What is the Accounting Equation
Assets = Liabilities + Owner's Equity
What does cost‑volume‑profit (CVP) analysis help businesses determine?
The number of units a business must sell to break even or achieve a desired profit
What is understandability?
Financial information should be comprehensible to users with a reasonable understanding of business and economic activities, so it must be presented clearly and concisely.
What is the period assumption?
This accounting assumption requires that financial reports are prepared for a specific period, such as a month or year, dividing the life of a business into arbitrary periods so profits can be determined and comparisons made over time.
Give one benefit of diversification when investing in shares.
spreading risk across different sectors and geographies so that consistent dividend income can offset losses from more volatile investments, creating a more resilient portfolio
Describe the difference between internal and external finance, giving an example of each.
Internal finance is generated within the business, such as capital contributions from the owner; external finance comes from outside sources, such as a bank overdraft
What is the break-even point?
In cost-volume-profit analysis, when the desired profit is zero, the quantity of items that must be sold to cover total fixed and variable costs is called the ______.
What is faithful representation?
This qualitative characteristic requires that financial information be complete, neutral and free from error.
What are the four accounting assumptions
Period, Accrual, Going Concern, Entity
Explain why dividend income from shares can be appealing to investors compared to rental income from property.
because share portfolios often provide higher yields, dividends can be reinvested to accelerate capital growth, and investing in shares requires less maintenance than managing physical property