BTEC Business: Financial Statements

Financial statements are a way of describing a business that does not always match the way it feels from the inside, and most of the marks lost here come from that gap. Depreciation is the clearest case: charging it reduces the profit a firm reports without a penny leaving the bank, and all three wrong options in that question are things people genuinely believe it does — put money aside for a replacement, record what the machine would fetch today, or reduce the tax bill. Profit and cash come apart in the same way. A firm can report a good year and still be unable to pay a bill, because profit counts a sale when it is made and the bank only knows about money that has actually arrived. The set also asks what a statement of financial position tells you and at what moment, sorts a van from stock and an unpaid supplier invoice from a machine, works gross and net profit through in two steps, applies the accounting equation, records a cost that has been incurred before any invoice exists, and finishes with why a supplier reads the accounts before offering thirty days to pay. Every firm is invented and every figure is inside the question. Zestly is an independent study tool. It is not affiliated with any exam board and it is not an exam centre.

• Say what a statement of financial position shows, and at what moment
• Classify an item as a current or non-current asset, or as a current liability
• Place a cost such as wages in the right statement
• Explain what depreciation is for, and that no cash moves when it is charged
• Calculate gross profit and net profit in the right order
• Apply the accounting equation to find capital from assets and liabilities
• Explain how a profitable business can run out of money
• Say what recording an accrual does to reported profit, and why a supplier reads the accounts

Why is depreciation charged on a machine? — To spread the cost across the years in which it is used, rather than charging it all to the year it was bought. No money moves when depreciation is charged, which is the point that most often surprises people.