Efficiency Ratios Formulas Quiz
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Questions and Answers

What is the purpose of source documents in accounting?

  • Record customer feedback
  • Monitor marketing expenses
  • Keep information and records for sales and accounting (correct)
  • Track employee attendance

    • In double-entry accounting, if a business sells an item for £10, what is the correct action for recording this transaction?

  • Credit the business cashbook by £10 and debit the business sales book by £10
  • Debit the business cashbook by £10 and credit the business sales book by £10 (correct)
  • Credit the business cashbook by £10 and credit the business sales book by £10
  • Debit the business cashbook by £10 and debit the business sales book by £10

    • What is the formula to calculate Gross Profit in accounting?

  • Cost of Sales - Income
  • Gross Profit x Overheads
  • Net Profit + Overheads
  • Income - Cost of Sales (correct)

    • Which of the following is considered an asset on a balance sheet?

    <p>Cash</p> Signup and view all the answers

    What is the purpose of a Trial Balance in the accounting cycle?

    <p>To ensure total debts equal total credits</p> Signup and view all the answers

    What represents liabilities on a balance sheet?

    <p>Bank Loans</p> Signup and view all the answers

    What does the Asset turnover ratio measure?

    <p>Sales efficiency in relation to capital employed</p> Signup and view all the answers

    How is Stock turnover calculated when only one stock is available?

    <p>Cost of sales / Average stock</p> Signup and view all the answers

    What does the Debtors' collection period measure?

    <p>Time taken to collect trade debtors' payments</p> Signup and view all the answers

    What is the main purpose of the Income statements?

    <p>To summarize main trends and events over the financial period</p> Signup and view all the answers

    What does the Auditors' report primarily focus on?

    <p>'True and fair view' of financial statements</p> Signup and view all the answers

    What does the Price/Earning (P/E) ratio compare?

    <p>Market price per share and Earnings per share</p> Signup and view all the answers

    What is the formula for calculating Gross Profit Margin percentage (GPM)?

    <p>Gross profit / Sales income</p> Signup and view all the answers

    In the context of liquidity, what does Working Capital (WC) represent?

    <p>Current assets - Liabilities</p> Signup and view all the answers

    What does the Acid test (AT) ratio measure?

    <p>Current assets - inventories : current liabilities</p> Signup and view all the answers

    How is Return on Capital Employed calculated?

    <p>(Profit for the year / Capital employed) x 100</p> Signup and view all the answers

    What does a Current Ratio (CR) of 2:1 indicate?

    <p>Current assets : Current liabilities</p> Signup and view all the answers

    What is Equity in terms of the accounting equation?

    <p>(Total Assets - total liabilities)</p> Signup and view all the answers

    What is the formula for calculating contribution?

    <p>Selling price - Variable costs</p> Signup and view all the answers

    At the break-even point, a business:

    <p>Covers all its costs but makes no profit</p> Signup and view all the answers

    What is the purpose of budgeting mentioned in the text?

    <p>To control future outcomes</p> Signup and view all the answers

    What is a favorable variance in budgeting?

    <p>When actual spending is less than the budgeted amount</p> Signup and view all the answers

    In capital investment methods, what does the payback method calculate?

    <p>Years to recoup an investment</p> Signup and view all the answers

    Which of the following best describes Net Present Value (NPV) in capital investment methods?

    <p>It considers the time value of money in investment decisions</p> Signup and view all the answers

    What is the purpose of the auditors’ report?

    <p>To confirm to the shareholders that the company's finances are truly and fairly stated</p> Signup and view all the answers

    Which term is used for allocating overheads that can be wholly identified with a particular department?

    <p>Allocation</p> Signup and view all the answers

    How are overheads shared out between different cost centers in apportionment?

    <p>Based on the square footage of each center</p> Signup and view all the answers

    What does the absorption rate help determine in cost centers?

    <p>The contribution to fixed costs</p> Signup and view all the answers

    What does break-even analysis calculate?

    <p>The contribution to fixed costs required to cover all expenses</p> Signup and view all the answers

    In what way does management accounting help businesses?

    <p>By improving future decision making and forecasting</p> Signup and view all the answers

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