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Questions and Answers
What does the statement of financial position primarily present?
What does the statement of financial position primarily present?
- Revenue and expenses
- Cash flow and liquidity
- A company's assets, liabilities, and equity (correct)
- Investments and dividends
Equity represents the company's obligations to external parties.
Equity represents the company's obligations to external parties.
False (B)
Name a type of asset expected to be converted into cash within a year.
Name a type of asset expected to be converted into cash within a year.
Current asset
The fundamental accounting equation is __________.
The fundamental accounting equation is __________.
Which of the following is classified as a current liability?
Which of the following is classified as a current liability?
Match the following financial terms with their correct definitions:
Match the following financial terms with their correct definitions:
Non-current assets have a shorter lifespan than current assets.
Non-current assets have a shorter lifespan than current assets.
What are liabilities? Provide an example.
What are liabilities? Provide an example.
What type of liability is 'Unearned Income' classified as?
What type of liability is 'Unearned Income' classified as?
Equity represents the owner's residual interest in the business.
Equity represents the owner's residual interest in the business.
What are accrued expenses?
What are accrued expenses?
______ is a temporary account used to track the amounts taken by the owner from the business.
______ is a temporary account used to track the amounts taken by the owner from the business.
Match the following terms related to liabilities with their definitions:
Match the following terms related to liabilities with their definitions:
Which of the following is NOT a characteristic of the Statement of Financial Position?
Which of the following is NOT a characteristic of the Statement of Financial Position?
Current assets can be used to pay off non-current liabilities.
Current assets can be used to pay off non-current liabilities.
What is the main purpose of the Statement of Financial Position?
What is the main purpose of the Statement of Financial Position?
Which element of the Statement of Financial Position (SFP) represents obligations of the company to another entity?
Which element of the Statement of Financial Position (SFP) represents obligations of the company to another entity?
The basic financial statement known as the Statement of Changes in Owner's Equity is also referred to as the Balance Sheet.
The basic financial statement known as the Statement of Changes in Owner's Equity is also referred to as the Balance Sheet.
What is the residual interest of the owner of the business in the Statement of Financial Position?
What is the residual interest of the owner of the business in the Statement of Financial Position?
In the classification of liabilities, __________ liabilities are expected to be settled within one year.
In the classification of liabilities, __________ liabilities are expected to be settled within one year.
Which of the following is NOT an element of the SFP?
Which of the following is NOT an element of the SFP?
Match the following types of liabilities with their definitions:
Match the following types of liabilities with their definitions:
If the owner's capital has a beginning balance of Php 700,245 and there were additional contributions of Php 50,000, alongside a net income of Php 150,545, how much did the owner withdraw from the business?
If the owner's capital has a beginning balance of Php 700,245 and there were additional contributions of Php 50,000, alongside a net income of Php 150,545, how much did the owner withdraw from the business?
What financial ratios are primarily measured to determine a company's liquidity and solvency?
What financial ratios are primarily measured to determine a company's liquidity and solvency?
Flashcards
Notes Payable
Notes Payable
A promissory note issued by a business to creditors for borrowed money or goods on credit.
Accrued Expenses
Accrued Expenses
Expenses incurred but not yet paid, like salaries or taxes.
Unearned Income
Unearned Income
Cash collected in advance for future services or goods.
Non-Current Liabilities
Non-Current Liabilities
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Statement of Financial Position
Statement of Financial Position
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Liquidity
Liquidity
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Solvency
Solvency
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Financial Structure
Financial Structure
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Balance Sheet
Balance Sheet
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Assets
Assets
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Liabilities
Liabilities
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Equity
Equity
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Accounting Equation
Accounting Equation
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Current Assets
Current Assets
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Current Liabilities
Current Liabilities
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Liquidity
Liquidity
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Balance Sheet
Balance Sheet
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Assets
Assets
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Liabilities
Liabilities
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Owner's Equity
Owner's Equity
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Report Form
Report Form
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Current Assets
Current Assets
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Current Liabilities
Current Liabilities
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Financial Statement
Financial Statement
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Study Notes
Balance Sheet Overview
- The balance sheet, also known as the statement of financial position, provides a snapshot of a company's financial health at a specific point in time.
- It outlines the company's assets, liabilities, and equity.
- This information is crucial for investors, creditors, and management to assess the company's financial standing and make informed decisions.
Accounting Equation
- The balance sheet demonstrates the fundamental accounting equation: Assets = Liabilities + Equity.
- Assets represent the resources owned by the company, including cash, accounts receivable, inventory, and fixed assets (e.g., property, plant, and equipment).
- Liabilities highlight the company's obligations to external parties, such as accounts payable, loans, and taxes payable.
- Equity represents the owners' stake in the company, reflecting initial investment, retained earnings, and changes in ownership.
Asset Classifications
- Current assets are expected to be converted into cash or used up within one year. Examples include cash, accounts receivable, and inventory.
- Non-current assets, also called long-term assets, represent investments with a longer lifespan. Examples include property, plant, and equipment.
Liability Classifications
- Current liabilities are obligations due within one year. Examples include accounts payable, notes payable, and accrued expenses.
- Non-current liabilities are obligations due beyond one year. Examples include loans payable and mortgages payable.
Equity Classifications
- Equity represents the residual interest in the assets of the company after deducting liabilities. Types include capital, drawing accounts.
Balance Sheet Formats
- Account format presents assets on the left side and liabilities and equity on the right.
- Report format lists assets first, followed by liabilities and equity. Both formats categorize assets and liabilities into current and long-term components.
Balance Sheet Analysis
- Liquidity refers to a company's capacity to meet its short-term obligations.
- Solvency refers to a company's capacity to meet its long-term responsibilities.
- Profitability gauges the company’s capacity to produce profits from its operations.
- The balance sheet is essential for analyzing a company's financial position and its financial health. By understanding the elements and their relationships, insights into financial performance and potential risks can be acquired.
Key Account Definitions
- Cash: Any item of monetary value a bank will deposit, including coins, currency, checks, money orders, travellers' checks, drafts, and funds in accounts.
- Receivables: The company's right to collect payments from customers arising from credit sales or credit services (e.g., accounts receivable, notes receivable).
- Inventory: Assets held for sale in the normal course of business or used in the production process. Examples include merchandise inventory, work in progress, and raw materials inventory.
- Prepaid Expenses: Expenses paid in advance that are recorded until their consumption.
- Property, Plant, and Equipment (PPE): Long-lived assets acquired for use in operations.
- Long-Term Investments: Intangible assets similar to PPE. Cost allocation is called amortization.
- Allowance for Doubtful Accounts: An amount estimated as uncollectible on receivables, complying with the principle of conservatism.
- Accumulated Depreciation: The total periodic costs associated with depreciating plant assets.
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Description
This quiz covers the essential components of a balance sheet, including assets, liabilities, and equity. Understanding these elements is critical for evaluating a company’s financial position. Key concepts such as the accounting equation and asset classifications will be addressed.
