Accounting 1.5

Question 1

Meaning - Gross profit percentage

Answer 1

This means (the business) has ___% of sales left in the business as gross profit to cover its operating expenses after accounting for cost of goods sold.

Question 2

Meaning - Mark-up percentage

Answer 2

This means that (the business) has increased the cost price of its inventory by 150% to get the selling price. For example, if (item) cost $100, (the business) will sell it for $150.

Question 3

Meaning - Distribution cost percentage

Answer 3

This means that (the business) spent ___% of the income it obtained from sales on distribution expenses, such as sales staff wages.

Question 4

Meaning - Administrative expense percentage

Answer 4

This means that (the business) spent ___% of the income it obtained from sales on administrative expenses, such as office rent.

Question 5

Meaning - Finance cost percentage

Answer 5

This means that (the business) spent ___% of the income it obtained from sales on finance costs, such as interest on loan.

Question 6

Meaning - Profit percentage

Answer 6

This means that (the business) has ___% of the income it obtained from sales left in the business as profit after all expenses have been accounted for.

Question 7

Meaning - Percentage change in sales

Answer 7

This means that (the business) has increased its sales by ___% over those of last year, which is a good result.

Question 8

Meaning - Percentage change in profit

Answer 8

This means that (the business) has increased its profit for the year by ___% over that of last year, which is a good improvement.

Question 9

Meaning - Current ratio

Answer 9

This shows (the business) has $___ in current assets to repay every $1 of current liability. This means that (the business) should be able to repay its short-term debts as they fall due in the next accounting period.

Question 10

Meaning - Liquid ratio

Answer 10

This shows (the business) has $___ in liquid assets to repay every $1 of liquid liability. This means that (the business) should be able to repay its immediate debts as they fall due in the next accounting period.

Question 11

Meaning - Equity ratio

Answer 11

This shows (the owner) has invested $___ out of every $1of total assets in (the business). This means the business is financially stable as more than half the assets are the result of investment by the owner. In other words, the value of the owner’s investments is more than the liabilities of the business.

Question 12

Reason - Gross profit percentage

Answer 12

1. Mark-up percentage increase/ decrease as a result of increasing the selling price.
2. Mark-up percentage increase/ decrease as a result of finding a cheaper inventory supplier while keeping the selling price the same.

Question 13

Reason - Mark-up percentage

Answer 13

1. Increase/ decrease selling price
2. Find a cheaper inventory supplier while keeping the selling price the same

Question 14

Reason - Distribution cost percentage

Answer 14

1. Open/ close branches,