Accounting Principles and Procedures

Question 1

Solvency

Answer 1

Degree to which current assets exceed current liabilities. i.e. Does it have net worth after this? If not then it is insolvent

Question 2

What is the difference between at Profit and Loss account and a Balance Sheet?

Answer 2

A P&L account details the trading transactions of a business for a particular period. It includes income from sales and expenditure to give a profit or loss over that particular period.
Whereas, a Balance Sheet is a statement of the businesses assets, liabilities and capital at a particular point in time, detailing the businesses financial position/standing.

Question 3

What is a gross margin?

Answer 3

The resulting amount of the incomes of a particular enterprise, such as for a dairy enterprise = milk sales + calf sales, minus the direct variable costs attributable to that particular enterprise such as feed costs. It can give you an idea of how the particular enterprise is performing but does not include fixed costs such as the tractor used to feed or cut the silage for the cows, labour etc. Hench its name gross margin, is not net of other costs.