30 Questions
What is the purpose of source documents in accounting?
Keep information and records for sales and accounting
In double-entry accounting, if a business sells an item for £10, what is the correct action for recording this transaction?
Debit the business cashbook by £10 and credit the business sales book by £10
What is the formula to calculate Gross Profit in accounting?
Income - Cost of Sales
Which of the following is considered an asset on a balance sheet?
Cash
What is the purpose of a Trial Balance in the accounting cycle?
To ensure total debts equal total credits
What represents liabilities on a balance sheet?
Bank Loans
What does the Asset turnover ratio measure?
Sales efficiency in relation to capital employed
How is Stock turnover calculated when only one stock is available?
Cost of sales / Average stock
What does the Debtors' collection period measure?
Time taken to collect trade debtors' payments
What is the main purpose of the Income statements?
To summarize main trends and events over the financial period
What does the Auditors' report primarily focus on?
'True and fair view' of financial statements
What does the Price/Earning (P/E) ratio compare?
Market price per share and Earnings per share
What is the formula for calculating Gross Profit Margin percentage (GPM)?
Gross profit / Sales income
In the context of liquidity, what does Working Capital (WC) represent?
Current assets - Liabilities
What does the Acid test (AT) ratio measure?
Current assets - inventories : current liabilities
How is Return on Capital Employed calculated?
(Profit for the year / Capital employed) x 100
What does a Current Ratio (CR) of 2:1 indicate?
Current assets : Current liabilities
What is Equity in terms of the accounting equation?
(Total Assets - total liabilities)
What is the formula for calculating contribution?
Selling price - Variable costs
At the break-even point, a business:
Covers all its costs but makes no profit
What is the purpose of budgeting mentioned in the text?
To control future outcomes
What is a favorable variance in budgeting?
When actual spending is less than the budgeted amount
In capital investment methods, what does the payback method calculate?
Years to recoup an investment
Which of the following best describes Net Present Value (NPV) in capital investment methods?
It considers the time value of money in investment decisions
What is the purpose of the auditors’ report?
To confirm to the shareholders that the company's finances are truly and fairly stated
Which term is used for allocating overheads that can be wholly identified with a particular department?
Allocation
How are overheads shared out between different cost centers in apportionment?
Based on the square footage of each center
What does the absorption rate help determine in cost centers?
The contribution to fixed costs
What does break-even analysis calculate?
The contribution to fixed costs required to cover all expenses
In what way does management accounting help businesses?
By improving future decision making and forecasting
Test your knowledge on efficiency ratios with important formulas to remember such as Asset Turnover, Stock Turnover, Debtors' Collection Period, Creditors Payment Period, and Gearing. Understand how to calculate and interpret these ratios for financial analysis.
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