Lesson 5-7

Question 1

inform the readers of a company’s financial position, results of operations, cash flows, and changes in equity.

Answer 1

Financial statements

Question 2

The process of evaluating risks, performance, financial health, and future prospects of a business using computational and analytical techniques with the objective of making economic decisions.

Answer 2

Financial statement analysis

Question 3

also known as trend analysis. It is a technique that involves the comparison of a line item (account) over a number of periods

Answer 3

Horizontal Analysis

Question 4

preparation of common-size financial statements. It is a technique that expresses each financial statement line item as a percentage of a base amount.

Answer 4

Vertical analysis

Question 5

the process of evaluating risks, performance, financial health, and future prospects of a business using computational and analytical techniques to make economic decisions.

Answer 5

Financial statement analysis

Question 6

trend analysis is a technique that involves the comparison of a line item (account) over a number of periods. Changes can be expressed in monetary value (peso) and percentages.

Answer 6

Horizontal Analysis

Question 7

technique that expresses each financial statement line item as a percentage of a base amount.

Answer 7

Vertical analysis

Question 8

composed of a numerator and a denominator. It expresses the relationship between specific financial statement data.

Answer 8

financial ratio

Question 9

we know how much income the company gets for every peso of sales. This ratio is called

Answer 9

net profit margin

Question 10

measure the ability of the company to generate income from the use of its assets and invested capital

Answer 10

Profitability ratios

Question 11

expresses gross profit as a percentage of sales. It can be interpreted as the peso value of the gross profit earned for every peso of sales.

Answer 11

Gross profit margin

Question 12

expresses operating income as a percentage of net sales. It is the peso value of the operating income earned for every peso of net sales.

Answer 12

Operating profit margin

Question 13

computed as gross profit less operating expenses.

Answer 13

Operating income

Question 14

expresses net income as a percentage of sales. It can be interpreted as the peso value of the net income earned for every peso of sales.

Answer 14

Net profit margin

Question 15

computed as net income divided by average total assets.

an also be computed using the ending balance of total assets instead of average total assets

It is a popular measure of the profitability of the company’s assets

Answer 15

Return on Assets

Question 16

computed as net income divided by average total equity.

Answer 16

Return on equity (ROE)

Question 17

measures the ability of the company to utilize its assets

measured based on the company’s ability to generate sales from the utilization of its assets, as a whole or individually.

Answer 17

Operational efficiency

Question 18

indicator of the efficiency with which the company is utilizing all its assets. It measures the peso value of sales generated for every peso of the company’s assets.

Answer 18

Asset turnover ratio

Question 19

This ratio is similar to asset turnover, fixed assets only

Answer 19

Fixed Asset Turnover

Question 20

is composed of property, plant, and equipment. It is an indicator of the efficiency of fixed assets in generating sales.

Answer 20

Fixed asset

Question 21

measured based on the cost of goods sold and not sales

Answer 21

Inventory Turnover

Question 22

measures the number of times the company can convert accounts receivable to cash during the year.

Answer 22

Accounts receivable turnover

Question 23

indicates the company’s reliance on debt or liability as a source of financing relative to equity.

Answer 23

Debt to equity ratio

Question 24

This is a ratio similar to the debt to equity ratio. It indicates the percentage of the company’s assets that are financed by debt. A’high debt to asset ratio implies a high level of debt.

Answer 24

Debt Ratio

Question 25

This ratio measures the company’s ability to cover the interest expense on its liability with its operating income.

Answer 25

Interest Coverage Ratio

Question 26

This ratio is used to evaluate the company’s liquidity.

Answer 26

Current Ratio

Question 27

This ratio is stricter than the current ratio. It suggests that not all current assets can be easily liquidated to pay for short-term liabilities.

Answer 27

Quick Ratio

Question 28

columnar notebooks used for recording transactions.

Answer 28

accounting books

Question 29

two basic accounting books:

Answer 29

the journal and the ledger.

Question 30

known as the book of original entry

Answer 30

Journal

Question 31

Recording on the journal is called

Answer 31

journalizing

Question 32

also known as the book of accounts, maintains at least one sheet per account.

Answer 32

The general ledger

Question 33

journal entry has four basic components:

Answer 33

the date of the transaction,
the debit side,
the credit side, and the explanation.

Question 34

the accounting journal used to record sales made on credit terms.

Answer 34

sales journal

Question 35

used to record all receipts of cash including cash sales

Answer 35

cash receipts journal

Question 36

the accounting book used to record all payments of cash including cash purchases.

Answer 36

cash disbursements journal

Question 37

composed of receivables from various customers.

Answer 37

Accounts receivable

Question 38

book of accounts.

Answer 38

general ledger

Question 39

used for accounts that require balances of its components such as Accounts Receivable and Accounts Payable.

Answer 39

Subsidiary ledgers

Question 40

such as AR-control or AP-control, are general ledger accounts with subsidiary accounts.

Answer 40

Control accounts