Content F Flashcards
Cost of good sold
Opening inventory + purchases - closing inventory
Depreciation formula
Original price - current price value
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Expected life
What is a prepayment
Paying for an item in advance
Accrual
A task ( expense ) has been made therefore added as an expense in the SOCI
What is a tangible asset
An asset that can be touched e.g land, machine
Intangible asset
Can’t be touched
3 examples of current assets
inventory
cash in the bank
Trade receivable
Trade payable
The people (usually supplier) the business owes money to
Retained profit
The profit kept from previous years
Net Assets formula
CA - CL
3 things found in the SOCI (net worth)
Depreciation
Prepayment
Accrual
What are ways a business that measure its profitability
Gross profit margin
Mark - up
Net profit margin
ROCE
Gross profit margin
Gp / revenue x 100
Mark up
gp/cost of sales x 100
Net profit margin
Net profit / revenue x 100
ROCE formula
Profit / capital employed x 100
Trade receivable days
Trade receivable/credit sales x365
Trade payable days
Trade payable / credit purchases x 365
Inventory turnover
Average inventory / cost of sales x 365
Average inventory
Opening Inventory + closing inventory
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2
What are 3 limitations of ratio
- calculated on past data
-ratios do not consider qualitative factors
-financial records can be manipulated
