Profit and Loss accounts, balance sheets, and financing a business

noorgal
Quiz by noorgal, updated more than 1 year ago
noorgal
Created by noorgal almost 5 years ago
120
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A quiz

Resource summary

Question 1

Question
What is Gross profit?
Answer
  • Sales turnover minus cost of sales
  • Sales turnover

Question 2

Question
What is Net Profit?
Answer
  • It is gross profit margin with sales turnover added minus cost of goods sold
  • The profit made after all costs and revenues have been accounted for. It is gross profit plus non-sales revenue minus operating costs.

Question 3

Question
What is the difference between Profit and Loss account, and Trading account?
Answer
  • Profit and Loss account is a record of revenues and costs of a business over a period of time such as 6 months or a year. While trading account is part of a profit and loss account which shows sales turnover, cost of sales and changes in stocks.
  • Profit and Loss account is a record of revenues and costs of a business over a period of time such as 6 months or a year. While trading account a completely different account which shows sales turnover, cost of sales and changes in stocks.

Question 4

Question
What is an appropriation account?
Answer
  • A part of the profit and loss account which shows what has happened to net profit.
  • A part of the profit and loss account which shows what the gross profit is.
  • It is an account which tells the accountant what to buy for next years stock

Question 5

Question
What is cost of sales?
Answer
  • Cost of production such as the cost of raw materials, direct wage costs and changes in stock.
  • Cost of the product sold. Such as £3.25 for a jar of nutella.

Question 6

Question
What is depreciation?
Answer
  • The fall in value of fixed equipment and buildings over time as they wear out.
  • The fall in value of the product sold as it loses it's value.

Question 7

Question
What is a balance sheet? And what does it contain.
Answer
  • A sheet which contains assets and liabilities.
  • A sheet which contains goods sold this year in relation with goods sold last year

Question 8

Question
What is an asset and what is the difference between fixed and liquid assets?
Answer
  • An asset is what a business owns. A fixed assets is something a business cannot sell or turn into cash easily whilst a liquid asset is something that can be turned into cash or sold easily. Cash is a liquid asset.
  • An asset is what a business owes. A fixed assets is something a business cannot pay back whilst a liquid asset is a debt which the company can pay back.

Question 9

Question
What is the difference between a liquid and current asset.
Answer
  • A liquid asset is easily turned to cash and a current asset is not.
  • Nothing, they are the same.

Question 10

Question
What is a liability and what is the difference between a fixed/longterm and liquid / current liability?
Answer
  • A liability is what the business owes. A current liability is a liability in which the business will have to pay within the next 12 months. The most important current liability is creditors. When a company buys a product is usually doesn't have to pay for the product until at least 30 days. These are trade creditors of the business, short term loans are current liabilities. A long-term liability is what the business has to pay in more than 12 months. This can include mortgages, long term loans.
  • What the business wants to buy but doesn't have enough money. Something expensive is a long term liability and something cheap is a current liability.

Question 11

Question
Capital and reserves are liabilities. This is money given to wages and money retained to invest further in the business (retained profit) is this true?
Answer
  • True
  • False

Question 12

Question
How do you work out Gross Profit Margin? It is usually in a percentage and is used to find out how much money the business will have left over.
Answer
  • GPM=(Gross profit / sales turnover) x 100
  • GPM=(Sales turnover / gross profit) x 100

Question 13

Question
How do you work out Net Profit Margin? It is usually in a percentage and is used to find out how much money the business will have left over.
Answer
  • NPM=( net profit / sales turnover) x 100
  • NPM=( sales turnover / net profit) x 100

Question 14

Question
in profit margins is it better to have a higher or lower percentage?
Answer
  • higher
  • lower

Question 15

Question
Financing the business through capital. There are shares, venture capital and retained profit. What is venture capital?
Answer
  • Venture capital companies invest and buy shares in small but growing businesses.
  • Venture capital companies buy small but growing businesses.

Question 16

Question
Financing the business through borrowing includes trade credit, factoring, bank loans, leasing and hire purchase, debentures and grants. What are trade credit and factoring?
Answer
  • Trade credit is when businesses don't have to pay for at least a month for its goods after the have been delivered by the suppliers. It means that the suppliers lend money for a month for 'free'. Sometimes companies may owe too much money and suppliers may stop supplying. If the business owes too much money it is in danger of going bankrupt, leaving the debt unpaid. Factoring is when you reduce the amount of money you borrow on an overdraft. It lowers the debt the business has to pay in the longterm Factoring
  • Trade credit and factoring are the same things.

Question 17

Question
Financing the business through borrowing includes trade credit, factoring, bank loans, leasing and hire purchase, debentures and grants. What are debentures and grants?
Answer
  • Large public limited companies can borrow money through the city of London by issuing debentures. These are long term loans for between 5 to 25 years. Interest has to be paid on the loan. Grants is money given to a business by a large number of bodies or the government on a selective basis. It is usually small businesses that benefit from grants. Grants can be lengthy and there are lots of from to fill in . It can frustrating and overwhelming. Also businesses have to prove they are using the money wisely.
  • Partnerships or sole traders can borrow money through the city of London by issuing debentures. These are long term loans for between 5 to 25 years. Interest has to be paid on the loan. Grants is money given to a business by a large number of bodies or the government on a selective basis. It is usually small businesses that benefit from grants. Grants can be lengthy and there are lots of from to fill in . It can frustrating and overwhelming. Also businesses have to prove they are using the money wisely.
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