Understanding statements of financial position

• What three components does the statement of financial position show?

  Assets, liabilities, and equity
• What is the significance of assets in a company's balance sheet?

  • Indicates financial health
  • Shows resources available for operations
  • Reflects company's investment in growth
• Why are liabilities important in the context of a café's financial health?

  They balance what the café owns with what it owes
• If a business has £20,000 in assets and £5,000 in liabilities, what is the equity?

  £15,000
• How are liabilities classified?

  • Current Liabilities: Paid within one year
  • Non-Current Liabilities: Paid beyond one year
• If a company has assets of $100,000 and liabilities of $60,000, what is the equity?

  $40,000
• What is the relationship between assets, liabilities, and equity?

  • Assets = Liabilities + Equity
  • Balances what the company owns with what it owes
• How do assets, liabilities, and equity relate to each other in a balance sheet?

  They must satisfy the equation Assets = Liabilities + Equity
• What does equity represent in the statement of financial position?

  Owner's investment
• How does accounts payable relate to a shop's liabilities?

  It is a current liability owed to suppliers
• How are assets categorized?

  Into current and non-current
• What are the components of the accounting equation?

  Assets, Liabilities, Equity
• What fundamental equation does the balance sheet ensure is always true?

  Assets = Liabilities + Equity
• What would be a current asset for a café?

  Daily cash sales and coffee beans
• What are assets in a company?

  What a company owns providing future benefits
• What do liabilities represent in a company?

  Liabilities are what a company owes
• How are assets categorized?

  • Current Assets: Used within one year
  • Non-Current Assets: Used longer than one year
• What is another name for the statement of financial position?

  Balance sheet
• What is the basic accounting equation?

  Assets = Liabilities + Equity
• What does the equation Assets = Liabilities + Equity represent?

  The relationship on the balance sheet
• What do assets represent in a company?

  Assets are what a company owns
• What is the relationship between assets, liabilities, and equity?

  Assets are financed by liabilities and equity
• What is the basis for categorizing assets into current and non-current?

  Based on their usage time
• How does the accounting equation ensure balance?

  It states that assets equal liabilities plus equity
• What does equity represent in a company?

  Owners' stake in a company
• What do assets represent in a balance sheet?

  What the company owns
• What is the payment timeframe for current liabilities?

  Within one year
• What are retained earnings?

  Profits kept instead of distributed as dividends
• What equation relates to the categorization of assets?

  Assets = Liabilities + Equity
• What is the amount of loan payable for the coffee shop?

  £10,000
• How much cash does the coffee shop have?

  £10,000
• How is equity calculated?

  Difference between assets and liabilities
• What do liabilities represent in a balance sheet?

  What the company owes
• What are the components of each section of the balance sheet?

  • Assets: cash, buildings
  • Liabilities: loans, accounts payable
  • Equity: owner's investment, retained earnings
• If a café owner invested £20,000 and earned £5,000 profit, what is the equity?

  £25,000
• What would be a non-current asset for a café?

  Coffee machine and furniture
• What does equity represent in a company?

  Equity is what belongs to the owners
• What is the accounting equation represented in the statement of financial position?

  • Total Assets = Total Liabilities + Total Equity
  • Example: £55,000 = £15,000 + £40,000
• What is the total amount of assets for the coffee shop?

  £55,000
• In a restaurant, what would be considered a current asset?

  Food supplies and cash from sales