Questions:
- Define assets.
- Give four examples of business assets.
- Explain the difference between current and non-current assets.
- Define liabilities.
- Give four examples of business liabilities.
- Explain the difference between current liabilities and non-current liabilities.
- State whether the following is an asset or a liability:
- a) Loan from a bank
- b) Office building
- c) Salaries owed to employees
- d) Inventory
- What are trade receivables? Provide an example.
- What are trade payables? Provide an example.
- Explain what capital is in a business context.
- Define drawings and give an example.
- What is the purpose of an income statement?
- Why is it important for a business to keep track of its liabilities?
- List two examples of non-current liabilities.
- Explain how assets and liabilities affect a business’s financial health.
ANSWERS
- Assets are items of value owned by a business.
- Cash, inventory, buildings, vehicles.
- Current assets can be converted into cash within a year; non-current assets last longer than a year.
- Liabilities are what a business owes to others.
- Loans, accounts payable, wages payable, taxes payable.
- Current liabilities are due within a year; non-current liabilities are due in more than a year.
- a) Liability, b) Asset, c) Liability, d) Asset.
- Trade receivables are money owed to the business by customers who bought on credit. Example: Customer promises to pay later.
- Trade payables are money owed by the business to suppliers. Example: Owing money for goods bought on credit.
- Capital is money or assets invested by the owner in the business.
- Drawings are money taken out by the owner for personal use. Example: Using business funds to buy a personal item.
- An income statement shows the profit or loss of a business over a period.
- To ensure it can pay back debts and avoid financial trouble.
- Long-term loans, bonds payable.
- Assets increase a business’s value; liabilities decrease it.
