CXC Principles of Accounts: Financial Statements 3

Question 1

The Current Ratio is calculated as:

Accepted Answer

Current Assets ÷ Current Liabilities

Answer

Current Assets ÷ Total Assets

Answer

Total Assets ÷ Total Liabilities

Answer

Net Profit ÷ Net Sales

Question 2

A Gross Profit Margin of 40% means:

Accepted Answer

For every $100 of net sales, $40 is gross profit

Answer

40% of revenue remains as profit after all expenses

Answer

Operating expenses are 40% of net sales

Answer

Net profit is 40% of gross profit

Question 3

The Net Profit Margin ratio is calculated as:

Accepted Answer

(Net Profit ÷ Net Sales) × 100

Answer

(Net Profit ÷ Total Assets) × 100

Answer

(Gross Profit ÷ Net Sales) × 100

Answer

(Net Profit ÷ Owner's Equity) × 100

Question 4

The Acid Test (Quick) Ratio differs from the Current Ratio because it excludes:

Accepted Answer

Inventory (closing stock)

Answer

Cash and bank balances

Answer

Accounts receivable

Answer

Prepaid expenses

Question 5

The purpose of the Cash Flow Statement is to:

Accepted Answer

Show cash inflows and outflows over a period

Answer

Show the net profit or loss for the accounting period

Answer

Show all assets and liabilities owned by the business

Answer

Show the equity position of the owner

Question 6

Which of the following would be recorded as a cash inflow in a Cash Flow Statement?

Accepted Answer

Proceeds received from a bank loan

Answer

Purchase of new equipment

Answer

Payment of employee wages

Answer

Repayment of a long-term mortgage

Question 7

Inventory Turnover ratio measures:

Accepted Answer

How efficiently a business sells and replaces its inventory

Answer

How quickly a business collects money from its debtors

Answer

The ratio of current assets to current liabilities

Answer

The percentage of total assets financed by debt