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business
accounting for business

Questions and Answers of Accounting for Business

15. A company’s telephone bill is about £100 per week, paid in arrears. Four weeks need to be accrued at the end of December. Total amount accrued at the end of December?& £100& £400& £0&
1. What is a variance?& Difference between budget and actual& Actual plus budget& A plan set out in money terms& Something with a changing value& Difference between gross profit and net profit
2. If actual sales are more than budgeted& Profit margins must be higher than anticipated& Cash decreases& Expenses decreases& Customers have bought more than was planned& Fixed assets reduce
3. Why is opening stock zero in a new business?& New businesses do not need stock& New businesses cannot afford stock& There is no previous year from which to bring forward stock& Assets are set back
4. A new business expects to buy 15,000 units in the first year and sell 12,000 units;therefore, the number of units left in stock at the end of the year is expected to be& 15,000 units& 18,000
5. Why do new businesses have to pay cash for materials and equipment?& They receive cash from customers& Because it improves cash flow& They have plenty of cash received from the owner& To increase
6. If actual expenses are greater than budgeted& Actual net profit is reduced& Actual cost of sales increases& Actual net profit is increased& Actual drawings increases& Actual net profit is
7. Budgeted sales £742,456, actual sales £724,546& Unfavourable sales variance& Sales variance 57% favourable& Zero sales variance& Sales variance 2% favourable& Favourable sales variance
8. Budget ¼ £10,000, actual ¼ £15,000, variance % ¼ ?& 150%& 100%& 75%& 50%& 0%
3. If sales fall, but expenses stay the same& Net profit % increases& Expense % increases& Gross profit % stays the same& Net profit % stays the same& Expense % falls
4. For every £1 paid out £2 is received& Current ratio ¼ 2& Current ratio ¼ 0.5& Current ratio ¼ 1& Current ratio ¼ 0& Current ratio ¼ 10
5. If debtor days ¼ 90 days& On average debtors take one month to pay& On average debtors take two months to pay& On average debtors take three months to pay& Debtors are zero& All sales must be
13. Earnings per share (EPS) ¼ £0.20, price of the shares ¼ £3.00; therefore, price to earnings ratio (PER) ¼ ?& 1& 5& 10& 12& 15
14. Price to earnings ratio (PER) ¼ 20 suggests a company is& Making a loss& In a particularly risky sector& With high borrowings (gearing)& With inexperienced management& With average risk and
15. A company with no long-term borrowing or overdrafts has what gearing ratio %?& 100%& 90%& 50%& 25%& 0%
1. Which of these sources of finance is not affected by interest rates?& Bank overdraft& Bank loans over 5 years& The price of debentures or bonds& Reinvesting profits& Bank loans over 10 years
2. Which of these reduces the founder’s share of a business?& A bank loan& Reinvesting profits& Government grants& Unsecured overdraft& Issuing shares to the public
3. Are creditors a free source of finance?& Yes, they are the same as a 0% overdraft& Yes, suppliers are charitable institutions& No, suppliers owe the business money& No, the costs of giving credit
4. Which of these is not a benefit of reinvesting profits?& Quick and simple to access& Does not dilute the founder’s share of the business& Encourages organic and steady growth& No interest has to
5. Why can’t a small retail business be floated on a major stock exchange?& The costs of floatation are too high, e.g. £1,000,000& The retail sector is not popular with institutional investors&
6. What is a secured loan?& A loan to a security firm& A loan with a low interest rate& An overdraft& A loan agreement allowing the bank to sell certain company assets in the event of default& Extra
7. Stock days 30, debtor days 60 and creditor days 15 – working capital cycle?& WCC ¼ 30 days& WCC ¼ 60 weeks& WCC ¼ 90 days& WCC ¼ 105 years& WCC ¼ 75 days
8. Which of these is not a way of reducing the working capital cycle?& Reduce debtor days& Reduce stock turnover& Increase creditor days& Increase debtor days& Reduce debtor days and stock turnover
9. A company with total net assets of £5m bought for consideration of £6m results in goodwill of?& Zero& £5m& £6m& £1m& £11m
10. Which of these is a way of reducing lead times?& Ask the supplier not to hold finished goods stock& Make the manufacturing process more complex and time consuming& Redesign the product to make it
11. Which of these is not a cost of holding stock?& Damage& Theft& Obsolescence& Deterioration& Prevents stock outs
12. Profit after tax ¼ £2m, total number of shares issued ¼ 20m; therefore, earnings per share (EPS) ¼ ?& £0.001& £0.01& £0.10& £1.00& £10.00
11. Profit after tax ¼ £1.5m, total net assets ¼ £15m; therefore, return on capital employed ¼ ?& 1%& 5%& 10%& 50%& 100%
10. What is a ‘group’?& A modern musical ensemble, e.g. Beatles& A subsidiary& A holding company& A holding company plus its subsidiaries& An industry
6. An increase in selling price& Increases gross profit %& Reduces gross profit %& Increases the volume of sales& Is connected to supplier power& Has no effect on net profit
7. Company A has four suppliers, but two merge and all the suppliers increase their prices. The impact on company A?& Cost of sales stays the same& Sales increase& Cost of sales increases& Gross
8. An increase in the number of companies competing for market share leads to?& An increase in rivalry in the market& An increase in the price consumers pay& An increase in substitution& A reduction
9. If debtor days is greater than creditor days& Money is received faster than it is paid out& Current ratio ¼ 2& Money is paid out faster than it is received& Cash balance must stay the same& Stock
10. A rapid increase in return on capital& Increases barrier to entry& Encourages firms to leave the market& Increases gross profit %& Encourages firms to enter the market& Increases interest rates
1. Turnover is a different name for& Sales& Stock& Current assets& Taxation& Fixed assets
2. Rather than drawings, limited companies have& Closing capital& Overdrafts& Dividends& Cash& Profits
3. ‘Creditors: amounts falling due in less than one year’ is equivalent to& Debtors& Loans& Owner’s capital& Fixed assets& Current liabilities
4. A dividend is& Money paid out to each share in a limited company, e.g. 25p per share& Money paid out to the bank& A person of limited intelligence& Money paid to company directors& Money paid to
5. Why are limited companies so popular in business?& They are not subject to taxation& They pay lower rates of taxation& Shares can be traded on the stock exchange& They cost nothing to set up& In
6. What is ‘return on capital employed’?& The amount of profit per pound (£) of net assets invested& The interest earned on cash at the bank& Dividends& The number of employees& The expected
7. What is risk?& Cash& The possibility of losing money& An increase in capital& Something certain to happen, e.g. Christmas& A profit
8. How can risk be measured?& The difference between the best and worst outcomes& The difference between assets and liabilities& The same as capital& The difference between capital and cash& Profit
9. What is a holding company?& A company holding shares in other trading companies& A subsidiary& A dormant company& A bank& A trading company
12. Demand pull production means?& Manufacturing goods to go straight into stock& Customers are pulled in off the street, often against their will& Goods are made only when customers order them&
8. Which of these does not increase the risk of bad debt?& Trying to attract new customers with generous credit terms& Concentrating on two or three big customers, rather than many small customers&
3. When wages are paid in cash, which of the following goes up?& Purchases& Fixed assets& Profit& Expenses& Drawings
13. What is meant by the term ‘capital expenditure’?& Buying fixed assets& Selling fixed assets& Increasing capital& Increasing purchases& Borrowing money
14. Which of the following sells to the final consumer of goods?& Manufacturer& Distributor& Wholesaler& Retailer& Foreign suppliers
15. Which of these is not a particular type of cash?& Money in the bank& Petty cash& Money in a deposit account& Money in a foreign bank& Stock
16. What is the definition of gross profit?& Sales less expenses& Sales less cost of sales& Sales less purchases& Sales less cash& Capital less drawings
17. What is the difference between a fixed and current asset?& Current assets are a type of liability& Current assets appear on the balance sheet& Current assets last for more than one year& Fixed
18. Credit sales always lead to?& Creditors& Debtors& Stock& Fixed assets& Capital
19. Working capital is?& Stock þ debtors þ cash& Creditors þ overdraft& Current assets less current liabilities& Fixed assets þ current assets& Current liabilities þ long-term loans
20. Which of these is not a type of fixed asset?& Delivery van owned by the business& IT equipment owned by the business& Retail premises owned by the business& Stock owned by the business& Filing
1. As a result of a cash sale, which of the following goes up?& Creditors& Drawings& Debtors& Cash& Fixed assets
12. The impact of drawings is to?& Increase purchases& Increase capital& Reduce capital& No impact on capital& Increase fixed assets
11. Which of the following is not a liability?& Bank loan& Creditor& Overdraft& Capital& Debtors
10. Purchases are?& Goods bought to give to charity& Goods bought to sell at a profit& Fixed assets& Materials used in production& Anything the company buys
f 1. Expenditure includes?& Purchases and fixed assets& Drawings and capital& Purchases and expenses& Capital and profits& Cash purchases and liabilities
2. Which of the following is not a cash sale?& Sales paid for by cheque& Sales paid for in notes and coins& Sales paid for with a credit card& Sales paid for with a switch card& Sales paid for at an
3. Stock is?& The quantity of goods at the end of the year& The total value of all the goods purchased during the year& Items purchased to sell at a profit& The value of goods left over at the end of
4. Which of the following is not an asset?& Creditors& Fixed assets& Cash& Debtors& Petty cash
5. Capital is?& The total amount of cash in the business& The amount the bank has invested in the business& Total of the fixed assets and current assets& The total amount the owner has invested in
6. Which of these is the most favourable combination?& Cash purchases and credit sales& Credit purchases and no sales& Credit purchases and credit sales& Credit purchases and cash sales& Cash
7. Credit purchases always lead to?& Fixed assets& Debtors& Drawings& Creditors& Expenditure
8. Interest paid to a bank is an example of?& Income& Liabilities& Expenses& Drawings& Fixed assets
9. Debtors are?& The owner& The bank& Suppliers& Employees& Customers
2. Which of the following is not a liability?& Profit& Capital& Loan& Petty cash& Creditors
4. When cash is received from a debtor, which of the following goes down?& Sales& Creditors& Cash& Debtors& Profit
6. Why are receipts different from sales?& Because sales includes VAT& Receipts are always the same as cash& Because the P&L account is for a year not a month& Because cost of sales is subtracted
8. Balance B/F is the cumulative balance& At the start of the year& On net cash flow& At the middle of the year& Of payments& At the end of the year
9. Balance B/F ¼ $1 million, NCF ¼ $12 million, balance C/F ¼ ?& $1 million& $13 million& $11,000,000& $12& $12 million
10. Why is negative net cash flow bad?& It increases staff motivation& It increases the tax bill& It increases drawings& It increases interest received& It reduces the money available for buying
1. Bad debt write off leads to an increase in?& Profits& Cash& Fixed assets& Debtors& Expenses
2. Why do bad debts reduce cash?& More money going out of the business& More money coming in to the business& Net cash flow stays the same& Less money coming in to the business in the future&
3. Specific bad debt provision is made against?& Debtors in general& A specific customer& A specific supplier& A fixed asset& Owner of the business
4. When cash is unexpectedly received from a bad debt already written off& Debtors stay the same& Expenses increase& Cash remains the same& Depreciation increases
5. Which of these situations increases net profit the most?& An increase in discounts allowed& A proportional increase in both discounts allowed and received& A decrease in discounts allowed and an
6. Which of these is not a liability?& Creditors& Sales tax& Corporation tax& Stock& Overdraft
7. Negative net current assets means?& More assets than liabilities& More current assets than current liabilities& Fewer assets than liabilities& Fewer current assets than current liabilities& More
7. Why is depreciation not included in cash flow?& Because it is not a cash transaction& Because fixed assets are used for more than one year& Because fixed assets are not always paid for& Because
8. Motor vehicle insurance is paid in cash, which goes up?& Purchases& Fixed assets& Profit& Expenses& Drawings
6. Which of the following defines a fixed asset?& The amount owed to suppliers& Capital& What the company owns& The amount customers owe the company& Assets owned for more than one year
7. When the owner puts money into the business, what goes up?& Profit& Capital& Loan& Sales& Creditors
9. At the end of the financial year, which of the following is set to zero?& Purchases& Creditors& Equipment& Debtors& Capital
10. When a loan is repaid, which of the following goes down?& Capital& Bad debt& Interest received& Expenditure& Cash
1. Which of the following is not a receipt?& Cash received from customers& Interest received from the bank& Start up capital received from the owner& Cash paid to suppliers& Cash received when
2. Which of the following is not a payment?& Cash paid for purchases& Purchases bought on credit and not yet paid for& Cash paid for expenses& Cash paid for fixed assets& Cash drawn out by the owner
3. What is net cash flow?& The difference between assets and liabilities& The difference between cash and credit& The total money paid out in a year& The money held at the start of the year& The
4. Receipts ¼ £149 million, payments ¼ £137 million, net cash flow ¼ ?& þ£2 million& £12 million& £149 million& þ£12 million& þ£12,000
5. Cash flow is negative when?& A new business starts& Money going out is greater than money coming in& New equipment is bought for cash& The starting balance is negative& Receipts are greater than
5. When goods are bought on credit, which of the following goes up?& Profit& Debtors& Expenses& Creditors& Income
Discuss how your analysis would have been altered if you were carrying out the analysis on behalf of a prospective shareholder.
Apart from the information arising from your analysis what other information would you advise the bank to consider when making their decision.
Based on your analysis write a brief report for the bank advising them on whether to continue to provide finance for Belper Ltd.
Using whatever form of analysis you consider appropriate comment on the financial risk profile of Bel per Ltd for the five years under review.
Calculate the trends in the sales and cost of sales and comment on the information disclosed by your analysis.
Produce common size profit and loss accounts for the five years and analyse these statements with particular reference to the profitability of Belper.
From a review of the information above identify the areas which you would concentrate on in your analysis of the position of Belper Ltd.
What are the limitations to our analysis which are inherent in the accounting data we are using?

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