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27 Cards in this Set
- Front
- Back
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Statement of financial position |
A method of recording the value or wealth of a business at a given moment in time |
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Assets |
What a business owns |
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Liabilities |
What the business owes |
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Current liabilities |
What the business owes in less than a year |
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Non-current Liabilities |
Money owed for more than one year |
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Liquidity |
The ability to convert assets into cash |
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Depreciation |
An allowance for the wear and tear on the fixed tangible assets |
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Tangible assets |
Assets which can be seen. Eg. A factory and machines will be fixed and tangible fixed assets |
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Intangible Assets |
Assets which are not visible, such as a patent or goodwill. |
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Goodwill |
The Goodwill of a business is of value when a business is being sold and explains why a business is bought in excess of its net assets value |
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Prudence |
Accounting phase, used to indicate that there is a need to be cautious when valuing a business |
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Fixed assets (non-current assets) |
Investing in long-term bonds or shares is considered as a fixed asset |
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Current assest |
Everything owned by the business which is not a non-current (fixed) asset. Capable of being turned into cash within the accounting period. Eg. Inventories, trade and other receivables (debtors) or cash. |
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Inventory (stock) |
Can be in the form of materials, unfinished goods and finished goods. Liquidity of stock depends on the type of stock held. |
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Trade and other receivables (debtors) |
Debts owed to the business within a year. Includes money owed to the business |
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Cash |
Most liquid current asset |
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Bad debts |
Not all debtors (trade receivables) will pay and these are called “bad debts”. Methods to estimate bad depts: Allowance method Ageing method Credit sales |
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Allowance method |
Made as a percentage of the debtors. Look at the records and take an average of bad debts. Times this by the receivables to give a value |
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Ageing method |
Looks at the records of trading with the business that is a bad debtor. Will decide whether to continue trading with that business or to stop completely |
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Credit sales |
A third method for estimating bad debts |
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Overdraft |
An agreement with a bank to borrow money to avoid cashflow problems |
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Short term loan |
A loan for a a fixed amount over a fixed period of time, less than one year |
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Trade and other payables (creditors) |
Opposite to debtors. Refers to other businesses (suppliers) which have not yet been paid |
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Net current assets (working capital) |
Current assets - current liabilities |
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Non-current liabilities |
Loans for more than a year. Mortgages, debenture (only issued by a plc, long term loan with a fixed rate of interest) and a bank loan (for more than a year) |
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Net assets |
=non-current asset - non-current liabilities |
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Shareholders’ equity or total equity (capital and reserves) |
Funds tied up in a business in the form of shares or retained profits. |
