2. Profit and Loss Statement Balance Sheet Ratio Analysis Working Capital Investment Appraisal Potpourri 100 200 300 400 500 100 200 300 400 500 200 300 400 500 200 300 400 500 200 300 400 200 300 400 500

3. Answer: This is abnormal profit. ? Profit that is above minimum profit is called _____ profit.

4. ? Another name for sales is _____. Answer: This is turnover.

5. ? Which financial statement provides information for one day only—a profit and loss statement or a balance sheet? Answer: A balance sheet provides information for one day only—it is a static statement.

6. ? Profit after expenses is known as _____ profit. Answer: This is net profit.

7. ? If net profit is $50,000 and turnover is $75,000, the net profit margin is: Answer: The net profit margin is: net profit turnover x 100 = 66.7%

8. Answer: The answer is owe. ? A liability is an amount that you o__.

9. Answer: Office furniture is a fixed asset—it is expected to last for a long period of time. ? Office furniture is an example of which type of asset—fixed or current?

10. Answer: This is called working capital. ? Current assets less current liabilities is known as _____ _____.

11. Answer: This is called “cooking the books”. ? “Creative accounting” is also known as _____ _____ _____.

12. Answer: Generally Accepted Accounting Principles. These are the rules that accountants must follow. ? What is GAAP?

13. ? Calculate the acid test ratio: current assets are $105,000; stocks are $5,000; current liabilities are $60,000. Answer: The acid test ratio is: current assets – stocks current liabilities $105,000-$5,000 $60,000 or 1.7

14. ? Calculate stock turnover in days: Cost of goods sold is $75,000 and stock is $35,000. Answer: Stock turnover is: Stock Cost of goods sold $35,000 $75,000 x 365 = 170.3 days

15. ? Calculate the gearing ratio: Loan capital is $45,000 and total capital employed is $125,000. Answer: The gearing ratio is: loan capital total capital employed $45,000 $125,000 x 100 = 36%

16. ? Events that occur within a business that change assets, liabilities, or capital are called _____. Answer: These are called transactions.

17. ? Checking the financial records of a business is known as _____. Answer: This is called auditing.

18. ? Name one time lag in the cash flow cycle. Answer: Paying suppliers; length of production process and costs; storage and transportation costs; length of time it takes customers to pay.

19. ? Explain how seasonal factors can impact liquidity of a business. Answer: Theme parks have business only certain times of the year so their cash flow is heavy during those times and light at other times; farmers have a long span between planting and selling crops.

20. ? If your credit policies are too _____, your company runs the risk of bad debts. Answer: These would be easy credit policies.

21. ? An example of a liquid asset is: Answer: This is something that can be converted into cash easily: cash; accounts owed from your debtors, stock (merchandise) that can be sold quickly.

23. ? Money flowing into and out of a business is known as the _____ _____ _____. Answer: This is known as the cash flow cycle.

24. ? A _____ _____ _____ helps a business know if they have shortages or surpluses of cash from month to month. Answer: This is a cash flow forecast.

25. ? These types of costs can be predicted pretty accurately from month to month: _____ costs. Answer: These are fixed costs such as the mortgage payment, loan payments, etc.

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

27. ? The term p.a. means _____ _____. Answer: This term means per annum or per year.

28. ? If profit per annum is $300 and the capital cost of a piece of equipment is $1,000, the average rate of return is: _____. Answer: The average rate of return is 30%. Net profit per annum Capital cost x 100 $300 $1,000 x 100 = 30%

29. ? Identify what would occur in the following transaction: Bought $300 worth of supplies for the business. Answer: Supplies would increase by $300; cash would decrease by $300.

30. ? Calculate cost of sales (cost of goods sold): Beginning stock was $50,000; purchases during the month were $35,000; ending stock was $40,000. Answer: Cost of sales (cost of goods sold) were $45,000. Beginning stock--$50,000 plus Purchases--$35,000 less Ending stock--$40,000 = $45,000

31. Answer: Total assets are $205,000 Fixed assets--$200,000 plus Current assets--$80,000 less Long-term liabilities--$50,000 less Current liabilities--$25,000 ? Calculate total assets: fixed assets are $200,000; current assets are $75,000; long-term liabilities are $50,000; current liabilities are $25,000.

32. Answer: This is B) Gearing ratio. If your company is highly geared, it may have too much debt. ? This type of ratio lets you know if your business has a high debt to equity ratio: A) Profitability ratio B) Gearing ratio C) Efficiency ratio

33. ? This type of ratio is used to determine solvency (ability to pay all debts) of a business: A) Profitability ratio B) Liquidity ratio C) Efficiency ratio This is a B) Liquidity ratio.

34. ? If a piece of machinery cost $50,000 and the expected cash flow was $10,000 for Year 1, $15,000 for Year 2, $20,000 for Year 3, and $30,000 for Year 4, how many years and months is the payback period? Answer: 3 years and 2 months Year 1: $10,000 Year 2: $15,000 Year 3: $20,000 Year 4: $5,000 $30,000 x 12 = 2 months