Study Guide, Chapter One: Question 1.2

Question 1.2 

For your firm, identify three Assets, three Liabilities and three items of Equity.  Describe what each item means to you (you may find some footnotes in your firm’s financial statements may help you to make more sense of these items). 

Assets
1. Goodwill: When the company is sold, this amount will be added to the company's market value. This is calculated based off the company's established reputation.
2. Inventories: This is the inventory or stock that the company has available at the time.
3. Cash and cash equivalents: This is the cash on hand, and cash equivalents such as checks received but not yet deposited, that the company has at the time.

Liabilities
1. Suppliers: This is a liability because a company is obliged to pay a supplier for their services.
2. Liabilities from tickets sold but not flown: This one is pretty self explanatory, it is the loss that occurs when a ticket is purchased but not used.
3. Income tax liabilities: This is tax that the company is legally obliged to pay the government.

Equity
1. Share capital: This is the money invested into the company by shareholders.
2. Share premium account: If a shareholder pays more than the cost of the share, the extra money is credited to this account.
3. Retained profit / (loss): Also referred to as retained earnings, this refers to the income the company retains rather than distributing it to the shareholders.

In all honesty, some of these terms meant absolutely nothing to me when I first saw them. However, after a little research on Google (I don't know where I would be without it), I was eventually able to grasp a better understanding of what they meant :)