CXC Principles of Accounts: Financial Statements 3

Question 1

The Current Ratio is calculated as:

Accepted Answer

Current Assets ÷ Current Liabilities

Answer

Current Ratio = Current Assets ÷ Current Liabilities, measuring a business's ability to meet its short-term financial obligations.

Question 2

A Gross Profit Margin of 40% means:

Accepted Answer

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

Answer

Gross Profit Margin = (Gross Profit ÷ Net Sales) × 100; a 40% margin means $40 gross profit is earned for every $100 in sales.

Question 3

The Net Profit Margin ratio is calculated as:

Accepted Answer

(Net Profit ÷ Net Sales) × 100

Answer

Net Profit Margin = (Net Profit ÷ Net Sales) × 100, showing what percentage of revenue remains as profit after all expenses are deducted.

Question 4

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

Accepted Answer

Inventory (closing stock)

Answer

The Acid Test Ratio excludes inventory because it is the least liquid current asset and cannot always be quickly converted to cash.

Question 5

The purpose of the Cash Flow Statement is to:

Accepted Answer

Show cash inflows and outflows over a period

Answer

The Cash Flow Statement tracks all cash received by and paid out by a business, showing the net change in the business's cash position.

CXC - Caribbean Examinations Council Practice Test