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27 Cards in this Set

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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

Assets

What a business owns

Liabilities

What the business owes

Current liabilities

What the business owes in less than a year

Non-current Liabilities

Money owed for more than one year

Liquidity

The ability to convert assets into cash

Depreciation

An allowance for the wear and tear on the fixed tangible assets

Tangible assets

Assets which can be seen. Eg. A factory and machines will be fixed and tangible fixed assets

Intangible Assets

Assets which are not visible, such as a patent or goodwill.

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

Prudence

Accounting phase, used to indicate that there is a need to be cautious when valuing a business

Fixed assets (non-current assets)

Investing in long-term bonds or shares is considered as a fixed asset

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.

Inventory (stock)

Can be in the form of materials, unfinished goods and finished goods. Liquidity of stock depends on the type of stock held.

Trade and other receivables (debtors)

Debts owed to the business within a year. Includes money owed to the business

Cash

Most liquid current asset

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

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

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

Credit sales

A third method for estimating bad debts

Overdraft

An agreement with a bank to borrow money to avoid cashflow problems

Short term loan

A loan for a a fixed amount over a fixed period of time, less than one year

Trade and other payables (creditors)

Opposite to debtors. Refers to other businesses (suppliers) which have not yet been paid

Net current assets (working capital)

Current assets - current liabilities

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)

Net assets

=non-current asset - non-current liabilities

Shareholders’ equity or total equity (capital and reserves)

Funds tied up in a business in the form of shares or retained profits.