Unit 3 Finance Financial Documents

1. Which financial document will predict the potential inflows and outflows in a business?

Balance sheets

Cash Flow

Profit / loss accounts

Cash Flow is the correct answer because it is a financial document that provides information about the potential inflows and outflows of cash in a business. It shows the movement of cash in and out of the business over a specific period of time, allowing businesses to predict and manage their cash flow effectively. Cash flow statements are essential for assessing the liquidity and financial health of a business and are used by investors, creditors, and management to make informed financial decisions.

Explanation

Cash Flow is the correct answer because it is a financial document that provides information about the potential inflows and outflows of cash in a business. It shows the movement of cash in and out of the business over a specific period of time, allowing businesses to predict and manage their cash flow effectively. Cash flow statements are essential for assessing the liquidity and financial health of a business and are used by investors, creditors, and management to make informed financial decisions.

2. A fixed asset is:

A debt that the company must pay back within a year

Something that a company owns is not expected to be of value in more than one years time

Something that a company owns and is likely to be of value in more than one years time

A debt that the company will pay back over a number of years

A fixed asset is something that a company owns and is likely to be of value in more than one year's time. This means that it is a long-term asset that is expected to provide benefits to the company for more than one accounting period. Fixed assets can include property, plant, equipment, vehicles, and other tangible assets that are used in the operations of the business. These assets are not expected to be sold or consumed within a year and are typically depreciated over their useful lives.

Explanation

A fixed asset is something that a company owns and is likely to be of value in more than one year's time. This means that it is a long-term asset that is expected to provide benefits to the company for more than one accounting period. Fixed assets can include property, plant, equipment, vehicles, and other tangible assets that are used in the operations of the business. These assets are not expected to be sold or consumed within a year and are typically depreciated over their useful lives.

3. Which Stakeholder is interested in Profit/Loss accounts because : "If good net profits then loans are more likely to be repaid"?

Managers

Bank

Employees

Government

Suppliers

Banks are interested in Profit/Loss accounts because if a company has good net profits, it is more likely to have the financial capability to repay loans. Banks assess the financial health and repayment capacity of businesses based on their profit/loss statements. If a company consistently generates profits, it indicates that they have sufficient funds to meet their financial obligations, including loan repayments. Therefore, banks closely monitor the profit/loss accounts of companies to determine their creditworthiness and assess the risk associated with lending to them.

Explanation

Banks are interested in Profit/Loss accounts because if a company has good net profits, it is more likely to have the financial capability to repay loans. Banks assess the financial health and repayment capacity of businesses based on their profit/loss statements. If a company consistently generates profits, it indicates that they have sufficient funds to meet their financial obligations, including loan repayments. Therefore, banks closely monitor the profit/loss accounts of companies to determine their creditworthiness and assess the risk associated with lending to them.

4. Which financial documents will inform a stakeholder about the current health of a business?

Cash Flow

Balance Sheets

Profit/Loss accounts

Balance Sheets provide information about a company's assets, liabilities, and equity at a specific point in time. By examining the balance sheet, stakeholders can assess the financial health of a business by understanding its liquidity, solvency, and overall financial position. It shows what the company owns (assets), what it owes (liabilities), and the owner's investment (equity). This information helps stakeholders evaluate the company's ability to pay its debts, its profitability, and its overall financial stability. Cash Flow and Profit/Loss accounts provide information about a company's cash inflows and outflows and its revenue and expenses, respectively, but they do not provide a comprehensive view of the company's financial health like the balance sheet does.

Explanation

Balance Sheets provide information about a company's assets, liabilities, and equity at a specific point in time. By examining the balance sheet, stakeholders can assess the financial health of a business by understanding its liquidity, solvency, and overall financial position. It shows what the company owns (assets), what it owes (liabilities), and the owner's investment (equity). This information helps stakeholders evaluate the company's ability to pay its debts, its profitability, and its overall financial stability. Cash Flow and Profit/Loss accounts provide information about a company's cash inflows and outflows and its revenue and expenses, respectively, but they do not provide a comprehensive view of the company's financial health like the balance sheet does.