Accounting

Question 1

What is the fundamental accounting eqaution

Answer 1

Assets - Liabilities = Owner’s equity

Question 2

What are assets

Answer 2

Assets are things you own

Question 3

What are liabilities

Answer 3

Liabilities are things you owe

Question 4

What is owners equity

Answer 4

Owner’s Equity is the dollar amount of what you own after your debt has been paid

Question 5

What are the two types of business and explain them

Answer 5

Service Business: provides services, like tennis coaching
Merchandising Business: buys goods from another company and resells them to make a profit, like no-frills or superstore

Question 6

What is an asset that loses value over time and what are the 4 methods to calculate it?

Answer 6

Depreciation: Straight line, declining balance, double diminishing and units of production (ASK DAVID IF U DONT UNDERSTAND LAST TWO AFTER GOOGLE)

Question 7

How do you calculate gross profit

Answer 7

Net Sales - Cost of Goods Sold

Question 8

How do you calculate profit

Answer 8

Gross Profit - Operating Expeses

Question 9

What is residual value

Answer 9

The amount that an asset is worth at the end of the lease

Question 10

What is simple interest and what is the formula

Answer 10

is an interest charge that borrowers pay lenders for a loan. It is calculated using the principal only and does not include compounding interest.
Principle * Rate of Interest * Time

Question 11

What is compound interest and what is the formula

Answer 11

Compound interest is when your money grows faster because it earns extra money on the money you already have.
A=Principle(1+Rate/Compound)^Rate/Time)

Question 12

What is the break even point and how do you calculate it

Answer 12

It’s the level of production at which the costs of production equal the revenues for a product
BEP = Sales / Costs

Question 13

What are fixed and variable costs

Answer 13

Fixed costs: of production are the costs that don’t change with the level of production.
Variable costs: of production, on the other hand, are the costs that change as the level of production changes.

Question 14

What is the formula for the current ratio and what does it tell us?

Answer 14

CA/CL and tells us if we can meet SHORT term obligations

Question 15

What is the formula for the quick ratio/ acid test ratio and what does it tell us?

Answer 15

Cash + A/R + Short Term Investments / CL
and tells us if we can meet IMMEDIATE obligations

Question 16

What is the formula for receivables turnover and what does it tell us?

Answer 16

Net Credit Sales / Average Gross A/R and tell us our liquidity in terms of receivables

Question 17

What is the formula for inventory turnover and what does it tell us?

Answer 17

COGS / Average A/R and tells us our liquidity in terms of inventory

Question 18

What is the formula for gross profit margin and what does it tell us?

Answer 18

Gross Profit / Net Sales and tell us our margin between selling price and COGS

Question 19

What is the formula for profit margin and what does it tell us?

Answer 19

Profit / Net Sales and tells us our amount of profit generated by each dollar of sales

Question 20

What is the formula for asset turnover and what does it tell us?

Answer 20

Net Sales / Average Total Assets and tell us how efficiently our assets are being used to generate sales

Question 21

What is the formula for return on assets (ROA) and what does it tell us?

Answer 21

Profit / Average Total Assets and tells us the overall profitability of our assets

Question 22

What is the return on equity formula (ROE) and what does it tell us?

Answer 22

Profit / Average Shareholders Equity and tells us the profitability of shareholders investments

Question 23

What is the Earnings per share formula and what does it tell us?

Answer 23

Profit - Preferred Dividends / Weighted Average Number Of Common Shares and tells us the profit earned on each common share

Question 24

What is the Price earnings (PE) formula and what does it tell us?

Answer 24

Market Price Per Share / Earnings Per Share and tell us the relationship between market price per share and earnings per share

Question 25

What is the Dividend payout formula and what does it tell us?

Answer 25

Cash Dividends / Profit and tells us the percentage of profit distributed as cash dividends