The Statement of Financial Position Flashcards

All 6 cards in this deck

What does the statement of financial position (balance sheet) show?

The overall value of a business at a particular point in time — its assets, liabilities and capital.

True or false? The statement of financial position shows how a business performed over the past 12 months.

False. It is a snapshot at one point in time; the income statement covers a period of time.

What is the difference between an asset and a liability?

An asset is something a business owns; a liability is something or money a business owes.

What is the difference between current assets and fixed assets?

Current assets are owned or last for less than a year (e.g. stock, cash); fixed assets are owned or last for more than a year (e.g. vehicles, buildings).

What is the difference between current liabilities and long-term liabilities?

Current liabilities must be repaid within a year (e.g. an overdraft or trade credit); long-term liabilities are repaid over more than a year (e.g. a mortgage).

What is the formula for working capital (net current assets)?

Working capital = current assets − current liabilities. It is the money available for the day-to-day running of the business.