2.1 Financial Statements of Limited Companies

• What is a limited company?

  A business organization with limited liability
• A limited company is a separate legal entity
• In a limited company, owners' liability is restricted to their investment
• Match the financial statement with its purpose:

  Statement of Financial Position ↔️ Shows assets, liabilities, and equity

  Statement of Profit or Loss ↔️ Shows revenues and expenses
• The Statement of Financial Position includes assets, liabilities, and equity
• What does the Statement of Profit or Loss show?

  Revenues, expenses, profit/loss
• Limited liability is a characteristic of a limited company
• What does the equity section in the Statement of Financial Position reflect?

  Ownership structure and retained earnings
• Owners' liability in a limited company is limited to their investment
• The equity section of the Statement of Financial Position includes share capital and accumulated profits
• What financial statement shows what a company owns and owes at a specific time?

  Statement of Financial Position
• The Statement of Profit or Loss reports how the company performed financially over a period by summarizing revenues, expenses, and profit/loss.
• The unique structure of limited companies, like limited liability, affects how financial statements are prepared.
• Match the components of the Statement of Profit or Loss with their descriptions:

  Revenues ↔️ Income earned from business operations

  Expenses ↔️ Costs incurred to generate revenues

  Profit/Loss ↔️ The difference between revenues and expenses
• What are revenues in the Statement of Profit or Loss?

  Income from business operations
• Expenses are the costs incurred to generate revenues in the Statement of Profit or Loss.
• What is the Profit/Loss in the Statement of Profit or Loss?

  Revenues minus expenses
• If a company has revenues of $100,000 and expenses of $80,000, its profit is $20,000.
• What is limited liability in a limited company?

  Owners risk only their investment
• Legal separation means a limited company is a distinct entity from its owners.
• The financial statements of limited companies include the Statement of Financial Position and the Statement of Profit or Loss.
• Match the financial ratios with their formulas:

  Return on Equity ↔️ \frac{\text{Net Income}}{\text{Shareholders' Equity}}</latex>

  Current Ratio ↔️ $\frac{\text{Current Assets}}{\text{Current Liabilities}}$
• What is the fundamental accounting equation?

  $Assets =$$Liabilities +$$Equity$
• The Statement of Cash Flows is divided into three main sections: operating, investing, and financing activities.
• What do cash flows from operating activities include?

  Cash received from customers
• Financing activities in the Statement of Cash Flows involve cash received from investors or paid to creditors.
• What do operating activities in the statement of cash flows represent?

  Core business operations
• The Statement of Cash Flows shows the inflows and outflows of cash over a period
• Investing activities include cash flows from investments in assets or other businesses.
• What type of cash flow activity results from asset sales?

  Investing activities
• The Statement of Cash Flows is divided into three main sections
• Cash spent on new equipment is classified under investing activities.
• Arrange the key components of the Statement of Changes in Equity in a logical order.

  1️⃣ Opening Equity

  2️⃣ Profit/Loss

  3️⃣ Dividend Payments

  4️⃣ Share Capital Changes
• What does opening equity refer to in the Statement of Changes in Equity?

  Equity at start of period
• In a limited company, owners' liability is limited to their investment
• Limited liability means owners risk more than their investment in the company.

  False
• Match the financial statement with its components:

  Statement of Financial Position ↔️ Assets, Liabilities, Equity

  Statement of Profit or Loss ↔️ Revenues, Expenses, Profit/Loss
• The Statement of Financial Position shows a company's assets, liabilities, and equity.
• What does the Statement of Profit or Loss primarily display?

  Revenues, Expenses, Profit/Loss
• Limited liability is a key characteristic of limited companies.