Economics and Finance

Question 1

What is the purpose of the Trial Balance?

Answer 1

Ensure transactions are kept and balanced accordingly

Question 2

Management accounts are required by law? T or F

Answer 2

F- internal use, decision making planning and monitoring companies performance

Question 3

The company takes out a loan to pay for a new van. Is this a loan or an asset

Answer 3

Loan-liability
Van - asset

Question 4

Define Trade debtor and creditorl

Answer 4

C- an entitiy or person to whom money is owed
D- entity or person who owe money to the person

Question 5

What is the difference between Gross Profit and a Gross Profit Ratio

Answer 5

GP- money left after subtracting the cost of goods sold
GP Ratio- (Sales - cost of sales)/ turnover x 100

Question 6

Discuss the difference between Cash and Profit

Answer 6

Cash is tangible, physical
Profit is the financial gain a business makes after subtracting its expenses from its revenues. It reflects how much money the business has made from its operations over a specific period.

Question 7

Double entry book keeping is a waste of time and money

Answer 7

A: time consuming, needs for speacilised accounting software, overvomplicated.
D: Ensures accounting record remains balanced and accurate, clear and comprehensive view of a biz financial position

Question 8

Define limited liability

Answer 8

Limited liability gives legal protection to the owners of a company, shareholders not liable to contribute more than their initial investment towards that overall debt.
Recognise the business and the owners as two separate bodies .

Question 9

Define sole traders

Answer 9

one person owns the business. The debts of the business are the debts of the owner, no obligation for public disclosure of financial information regarding the business.

Question 10

Define Public Company

Answer 10

Is a limited company. To form a limited company, it must be registered on Companies House, prepare annual accounts and submit

Question 11

Define a Not for Profit Organisation

Answer 11

Government have in place legislation which allows community sport org. as ‘incorporated associations’ allowing their members to be legally separated from the org. whilst maintaining a tax- free status.

Question 12

Define corporation tax

Answer 12

Introduced in 1965, tax levied on the profits of a business

Question 13

Define liquidity ratio

Answer 13

Measure of a company’s ability to meet its short-term obligations with it’s short-term assets
Easily a company can convert its assets into cash to cover debts

Question 14

What is current ratio

Answer 14

Example of a liquidity ratio
Total Current Assets/ Total Current Liabilities
Displayed as X:1

Question 15

Define marginal costing

Answer 15

The additional cost of making one more in a set period of time

Question 16

Define Defensive Position

Answer 16

Long term solvency relationship between capital and long-term debt
‘useful for sport’ assess the level of financial risk to identify if they are likely to get their money back
Lower level of borrowing= healthier position to be in

Question 17

Define the debt ratio

Answer 17

The extent to which creditors have power over an organisation
Identifies how much of the company’s assets are financed by debt

Question 18

Define Return on Capital Employed (ROCE)

Answer 18

A measure of how efficiently a company is using its capital to generate profits
Funding, capital employed, -sum of equity and debt funding

Question 19

What are the Pros and Cons of Ratio Analysis

Answer 19

Ratios are based on historical information contained in the financial statements, past performance not necessarily an indication of future performance
Even if audited the numbers in the financial statement are wrong even if audited
P: Allow for easy comparisons between companies , helps identify trends and patterns such as improving or declining profitability, liquidity or solvency