Profit and Loss Statement Balance Sheet Ratio Analysis Working Capital Investment Appraisal Potpourri

Answer: This is normal profit. ? The minimum amount an owner must make to stay in business is known as _____ profit.

? If a business is doing well, it is said to be “in the _____.” Answer: It is “in the black”.

? Which statement covers a period of time—profit and loss statement or balance sheet? Answer: A profit and loss statement covers a period of time; a balance sheet provides financial information for one day.

? Profit before expenses is known as _____ profit. Answer: This is gross profit.

? If net profit after tax is $60,000 and the number of shares issued is 1,000, the earnings per share would be: Answer: Earnings per share = net profit after tax number of shares issued = $60 per share

Answer: Assets = Liabilities + Capital ? The accounting equation is: _____ = _____ + _____.

Answer: The answer is own. ? An asset is something that you o__.

Answer: Current liabilities have to be repaid in one year or less. ? What kind of debts have to be repaid in one year or less—current liabilities or long-term liabilities?

Answer: Certified Public Accountant ? What does CPA stand for?

Answer: Arthur Andersen bit the dust. The Big 4 are PricewaterhouseCoopers, Deloitte and Touche, Ernst and Young, and KPMG. ? The top accounting firms used to be known as the Big 5. Now they are called the Big 4. Which firm went under due to poor accounting practices?

? If current assets are $105,000 and current liabilities are $60,000, the current ratio is: Answer: The current ratio is: current assets current liabilities $105,000 $60,000 or 1.8

? Calculate stock turnover— number of times: Cost of goods sold is $75,000 and stock is $35,000. Answer: Stock turnover (number of times) cost of goods sold stock $75,000 $35,000 or 2.1 times

? Calculate return on capital employed (ROCE): Net profit before tax and interest is $225,000. Total capital employed is $600,000. Answer: Return on capital employed is: net profit before tax and interest total capital employed $225,000 $600,000 x 100 = 37.5%

? GIGO means: Answer: GIGO means Garbage In, Garbage Out. Your financial data is only as good as the person who keys it in. It must be accurate for your statements.

? Accounting is known as the _____ of _____. Answer: Accounting is known as the language of business.

? Current assets should be about 1 ½ times the value of current liabilities to have adequate working capital. If current liabilities are $600, what should be the value of current assets? Answer: Current assets should be $900--$600 x 1.5

? What is one solution to a liquidity problem for a business? Answer: Sell fixed assets; lease assets; call in debt factoring company; ask for extension with creditors; offer cash discounts for debtors; make only essential purchases; sell unsold raw materials; get short-term loan; stop withdrawals.

? Debtors’ accounts should be _____ so that you know how long their account has been outstanding or unpaid. Answer: These accounts should be aged.

? With _____ credit policies, it is more difficult for your customers to get credit, but it could save your business from liquidity problems. Answer: This is called tight credit policies.

? In accounting, when these are around numbers it indicates that they are negative. Answer: ( )

? It is better for a business to _____ estimate costs and _____ estimate revenue. Answer: Overestimate costs and underestimate revenue

? These types of costs are difficult to accurately predict from month to month: _____ costs. Answer: These are variable costs.

? If payments are more than receipts, this is a(n) _____ cash flow. Answer: This is a negative cash flow.

? If profit is $900 for a period of 3 years, profit per annum is: _____. Answer: Profit per annum is: $900 3 = $300 per annum

? Which of the following is a source of internal financing? A) credit cards B) mortgages C) working capital D) long-term loans Answer: All of these are external sources of financing except for C) working capital.

? Identify what would occur in the following transaction: Charged $300 worth of supplies from Staples. Answer: Supplies would increase by $300; the amount owed to Staples would increase by $300.

? Which type of accountant would be more involved in determining how much a new product would cost to launch: managerial, financial, or cost accountant? Answer: This would be a cost accountant.

Answer: Net interest is $1,800. Interest receivable--$3,000 less Interest payable--$1,200 ? Calculate net interest: interest receivable is $3,000 and interest payable is $1,200.

Answer: The answer is ratios. ? _____ let you compare two related figures.

? Find the closing balance for the January cash flow forecast: Total receipts are $500; Total payments are $200; Opening balance is $100; Closing balance for January is _____. Answer: The closing balance for January is $400. Total receipts--$500 less Total payments--$200 plus Opening balance--$100 = $400

? The amount of time it takes to recover your money when you invest it in a project is known as the _____ _____. Answer: This is called the payback period.