Business Finance and Accounting Practice Quiz (32 questions)

Explanation

Sources of finance are the ways money comes into a business. “Ways money is spent” describes outflows, while sales income and ownership are narrower concepts.

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Retained profit is profit kept in the business instead of being distributed. Owners’ capital comes from an owner’s savings, sale of assets raises cash by selling property, and trade credit delays payment to suppliers.

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Venture capital is investment by investors who may also provide professional advice and monitoring. Crowdfunding draws from many speculative investors, a bank loan is borrowed money, and retained profit comes from the business’s own profit.

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Trade credit allows a business to obtain goods or services now and pay suppliers later, and it is suitable as a short-term source of finance. A mortgage is a long-term secured loan, while venture capital and bank loans involve different providers.

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A cash flow forecast is an educated prediction of a business’s future cash flow. A historical record looks backward, while profit estimates and cash targets are different measures.

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Net cash flow equals total cash inflow minus total cash outflow: $18,000 − $13,500 = $4,500. Adding gives $31,500, reversing the subtraction gives a negative result, and $13,500 is the outflow total.

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Closing balance equals opening balance plus net cash flow, so $7,200 + (-$1,800) = $5,400. Adding the outflow’s magnitude would incorrectly increase the balance; the net flow itself is not the closing balance.

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Promotions, new products or services, and improved marketing can increase sales and thereby improve cash. Supplier negotiation reduces costs, an overdraft borrows cash, and selling equipment raises cash by disposing of an asset.

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Entering new markets is one way to increase net profit by expanding sales opportunities. Borrowing provides cash but does not itself increase profit, while spending cuts and asset sales are different approaches.

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A statement of financial position shows what a business owns and owes, together with its capital or equity. A profit-or-loss result for a particular period is shown by an income statement.

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Assets are resources the business has, including bank balances, inventory, and trade receivables. Liabilities are amounts owed, capital or equity is the owner's share, and expenses are costs of running the business.

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Cost of sales is opening inventory plus purchases minus closing inventory: $12 + 30 - 9 = 33$ units. Omitting opening inventory gives 21, adding closing inventory gives 51, and subtracting purchases gives a different result.

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Gross profit equals revenue minus cost of sales, so $84{,}000 - 31{,}000 = 53{,}000$. Adding the two figures, reversing the subtraction, or using revenue without deducting cost of sales does not give gross profit.

Explanation

Depreciation is the reduction in a non-current asset's value over time due to wear and tear, age, or obsolescence. A cash payment is an expense transaction, appreciation is the opposite change in value, and purchase cost is the asset's initial value.

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Reducing-balance depreciation applies a fixed percentage to the asset's net book value each year. Using original cost confuses it with a cost-based calculation, while a residual-value base or fixed straight-line charge is not the stated reducing-balance rule.

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A cheque is a paper order instructing a bank to pay a specified amount from one account to another. A card purchase, an electronic transfer, and loading funds onto a prepaid card are different payment methods.

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An electronic transfer moves payment directly from one bank account to another and provides a payment record without additional cost. A cheque is a paper instruction, a prepaid card uses funds loaded in advance, and a charge card delays settlement.

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A prepaid card is loaded with money in advance, and each transaction reduces its balance; it does not require a bank account. Credit and charge cards involve later payment, while a store card is distinguished by where it is accepted.

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A charge card permits buying now and paying later, but the full balance must be paid each month when the statement is issued. Carrying an unpaid balance subject to interest is the documented credit-card distinction; immediate prepaid payment and store acceptance limits concern different features.

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A direct debit authorises a company to collect regular payments on an agreed date, and the amount can vary. A standing order uses a fixed amount, while BACS describes transfers between banks.

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A standing order instructs the bank to pay a fixed amount to another person's account regularly on set dates. A direct debit allows the amount collected by a company to vary, while BACS is a bank-to-bank transfer system.

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Liquidity is a business's ability to have enough assets to cover its liabilities. Profitability concerns earnings, while inventory value alone does not establish whether liabilities can be covered.

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The liquid capital ratio excludes inventory: $\frac{£96{,}000-£36{,}000}{£40{,}000}=1.5:1$. The value 2.4:1 includes inventory, while reversing the ratio gives 0.67:1.

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Gross profit margin is gross profit divided by revenue, multiplied by 100: £120,000 ÷ £480,000 × 100 = 25%. Using gross profit over cost of sales or reversing the ratio changes the measure.

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Mark-up compares gross profit with cost of sales, so the calculation is £180,000 ÷ £420,000 × 100. Using revenue as the denominator calculates gross profit margin, while reversing the ratio gives a different measure.

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Inventory turnover in days is average inventory divided by cost of sales, multiplied by 365: £24,000 ÷ £240,000 × 365 = 36.5 days. Omitting 365 or reversing the ratio does not apply the formula.

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The collection period is trade receivables divided by credit sales, multiplied by 365: £36,000 ÷ £240,000 × 365 = 54.75 days. The formula uses credit sales; reversing the ratio or leaving out 365 gives an incorrect result.

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The payment period is trade payables divided by credit purchases, multiplied by 365: £18,000 ÷ £120,000 × 365 = 54.75 days. Credit sales belong to the receivables collection calculation, while reversing the ratio or omitting 365 is incorrect.

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Probability means the chance of something happening, including customers buying a product. Efficiency concerns using resources well, profit margin measures profitability, and liquidity concerns covering liabilities.

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Efficiency is doing something well without wasting time, money, or resources. Probability concerns the chance of an event, while profit margin and liquidity describe financial measures.

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An eight-mark discussion answer should present an advantage in the first paragraph and a disadvantage in the second, without a judgement. Adding a judgement confuses this structure with an answer that evaluates; two advantages omit balance, and a solution-with-drawback structure addresses a different answer type.

Explanation

A developed point states the point, supports it with evidence such as a figure or case detail, and analyses how it affects the business. Another unsupported claim lacks evidence; repeating the claim is not analysis, and analysis without case evidence leaves the point unsupported.