7.2 Financial statements of limited companies

• The balance sheet is also known as the statement of financial position.


  True
• What are current assets examples in a balance sheet?

  Cash, accounts receivable, inventory
• The income statement is also known as the profit and loss statement.


  True
• What is included in the revenues component of an income statement?

  Sales revenue, service revenue
• Match the activity type with its description in the statement of cash flows:

  Operating Activities ↔️ Cash from normal business operations

  Investing Activities ↔️ Cash from buying or selling assets

  Financing Activities ↔️ Cash from borrowing or repaying debt
• Order the flow of information between the three financial statements:

  1️⃣ Net profit from income statement is added to retained earnings in the balance sheet

  2️⃣ Cash inflows and outflows in the statement of cash flows influence cash balances in the balance sheet
• The statement of cash flows reports the movement of cash through operating, investing, and financing activities.
• Cash from borrowing debt is classified as financing activities
• What are the three key financial statements prepared by limited companies?

  Balance sheet, income statement, statement of cash flows
• The fundamental accounting equation is Assets = Liabilities + Equity
• What are current liabilities examples in a balance sheet?

  Accounts payable, short-term loans
• The net profit in an income statement is calculated as Revenues - Expenses
• What are examples of expenses in an income statement?

  COGS, operating expenses, tax expense
• The net profit in the income statement is calculated as total revenues minus total expenses
• What type of cash flow results from normal business operations?

  Operating activities
• What does the balance sheet show at a specific date?

  Assets, liabilities, and equity
• What does the statement of cash flows influence on the balance sheet?

  Cash balances
• The balance sheet follows the fundamental accounting equation: Assets = Liabilities + Equity
• The key formula for net profit is: Net Profit = Revenues - Expenses
• The income statement reports a company's revenues, expenses, and net profit
• What are revenues in a company's income statement?

  Income from sales
• Investing activities relate to the purchase or sale of assets.


  True
• Current assets include cash and accounts receivable.


  True
• What does the income statement present over a period?

  Revenues, expenses, profit
• Steps to calculate net profit in the income statement:

  1️⃣ Calculate gross profit (Revenues - COGS)

  2️⃣ Subtract operating expenses

  3️⃣ Subtract interest and tax expenses

  4️⃣ Determine net profit
• Operating activities include cash from sales and payments to suppliers.


  True
• What type of format is used to present the balance sheet?

  Classified format
• Current assets include cash, accounts receivable, and inventory
• What are liabilities in a balance sheet?

  Obligations to pay others
• Long-term debt is classified as a non-current liability.

  True
• What does equity represent in a balance sheet?

  Owners' stake in the company
• Retained earnings are cumulative profits not distributed as dividends.


  True
• Income from sales or services is classified as revenue
• Gross profit is calculated as revenues minus the cost of goods sold.

  True
• What is net profit in an income statement?

  Overall profit after expenses
• Cash from normal business operations is classified under operating activities
• Cash from borrowing or repaying debt is classified as financing activities.


  True
• How is the net change in cash calculated in the statement of cash flows?

  Total cash inflows - total cash outflows
• What is the formula for net profit in the income statement?

  Net Profit = Revenues - Expenses
• The fundamental accounting equation is: Assets = Liabilities + Equity