6.2 Statement of financial position

• What is the purpose of the Statement of Financial Position (SFP)?

  Summarizes financial condition
• Equity is the owner's stake in the business after subtracting liabilities from assets
• Match the component of the SFP with its description:

  Assets ↔️ Resources owned by the company

  Liabilities ↔️ Obligations of the company

  Equity ↔️ Owner's stake in the company
• Assets are the resources owned by the business
• Assets are what the business owns, such as cash and equipment.


  True
• What is the basic equation governing the Statement of Financial Position?

  Assets = Liabilities + Equity
• Arrange the following items in the correct order to calculate equity using the SFP equation:

  1️⃣ Total Assets

  2️⃣ Total Liabilities

  3️⃣ Equity (Assets - Liabilities)
• Current assets are assets that can be converted to cash within one year.

  True
• Non-current assets are easily converted to cash within one year.

  False
• Match the component of the SFP with its description:

  Assets ↔️ What the company owns

  Liabilities ↔️ What the company owes

  Equity ↔️ Owner's stake in the company
• What are the two main types of assets for a sole trader?

  Current and Non-Current
• Liabilities are the obligations or debts owed by the sole trader to external parties
• What is an example of a non-current liability?

  Bank Loan
• Equity is calculated using the formula: Assets - Liabilities
• What does the Statement of Financial Position summarize?

  Financial condition
• Equity represents the owner's stake
• Match the component with its description:

  Assets ↔️ Resources owned by the company

  Liabilities ↔️ Obligations of the company

  Equity ↔️ Owner's stake in the company
• Retained earnings are an example of equity
• What are the two categories of assets?

  Current and non-current
• Non-current assets are easily converted to cash

  False
• What is the primary classification of liabilities based on their due dates?

  Current and non-current
• A bank loan due after one year is a non-current liability


  True
• Equity represents the owner's stake in the business

  True
• Equity is calculated as Assets minus Liabilities
• Arrange the components of the Statement of Financial Position in the correct order.

  1️⃣ Current Assets

  2️⃣ Non-Current Assets

  3️⃣ Current Liabilities

  4️⃣ Non-Current Liabilities

  5️⃣ Equity
• The accounting principle of Going Concern assumes that the business will continue indefinitely.indefinitely
• What does the current ratio measure?

  Short-term obligations ability
• Match the components of the Statement of Financial Position with their descriptions.

  Assets ↔️ What the business owns

  Liabilities ↔️ What the business owes

  Equity ↔️ Owner's stake in the business
• Current Assets are assets that can be converted to cash within one year
• What are current liabilities defined as?

  Obligations due within 1 year
• How is equity calculated for a sole trader?

  Assets - Liabilities
• What is the owner's stake in a business calculated as?

  Assets - Liabilities
• Cash is an example of a current asset

  True
• Accounts payable is an example of a current liability
• Match the accounting principle with its description:

  Consistency ↔️ Use same methods consistently over time

  Going Concern ↔️ Assume business operates indefinitely

  Matching ↔️ Recognize revenues and expenses in same period

  Prudence ↔️ Do not overstate assets or understate liabilities
• The acid-test ratio measures a company's ability to pay short-term obligations without selling inventory
• What is considered a healthy value for the acid-test ratio?

  At least 1
• The acid-test ratio includes inventory in its calculation

  False
• Current assets are assets that can be converted to cash within one year
• How is equity calculated in the Statement of Financial Position?

  Assets - Liabilities