Tag: book keeping and accountancy

Questions Related to book keeping and accountancy

Which of the following statements are true?
a. Common size balance sheet shows relative value of the various items.
b. In the common size income statement, each product is represented as a percentage of the net sales figure.
c. Common size income statements represents the various element as a percentage of the gross profit.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. Both (a) and (b)

  2. Both (a) and (c)

  3. Both (b) and (c)

  4. All of the above

Show answer
Correct Option: A
Explanation:

Common size statement, also known as component percentage statement, is a financial tool for studying the key changes and trends in the financial position and operational result of a company. Common size balance sheet shows relative value of the various items. In common size income statement, the item of expenditure are shown as percentage of the net sales. 

Common size analysis is also known as ______ analysis.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. Horizontal

  2. Ratio

  3. Vertical

  4. Trend

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Correct Option: C
Explanation:

Common size statement is a financial tool for studying the key changes and trends in the financial position and operational result of a company. common size analysis is also known as vertical analysis. Common size statements are useful, both, in inter-firm comparisons for the same year or for several years.

A common size balance sheet shows the percentage of each asset to the _____, and that of each liability to the ___. 

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. Total current assets, Total current liabilities

  2. Liabilities, Assets

  3. Total assets, Total liabilities

  4. None of the above

Show answer
Correct Option: C
Explanation:

Common size statement is stated as a percentage of the aggregate, of which that item is a part i.e. common size balance sheet shows the percentage of each asset to the total assets, and that of each liability to the total liabilities. The common size statement is also known as component percentage statement, is a financial tool for studying the key changes and trends in financial position and operational result of a company.

Choosing a common base (as 100), for example, sales revenue total may be taken as base (100) in case of income statement, and total assets or total liabilities (100) in case of balance sheet, is step ____ in the procedure adopted for preparing common size income statements.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. 1

  2. 2

  3. 3

  4. 4

Show answer
Correct Option: B
Explanation:

Choosing a common base for example sales revenue total may ne taken as base (100) in case of income statement, and total assets or total liabilities in case of balance sheet, in step 2 in the procedure adopted for preparing common size income statements. Common-size Income statement is the vertical analysis of Income Statement. 

A vertical analysis is shows all items as percentages and not in absolute figures which provides better comparison. Each line item is expressed as a percentage figure of the base figure within the statement. The base is always shown as 100. 

Which of the following would best explain a situation where the ratio of (net income/Total equity) of a firm is higher than the industry average, while the ratio of (net income/Total assets) is lower than the industry average?

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. The firm's net profit margin is higher than the industry average

  2. The firm's assets turnover is higher than the industry average

  3. The firm's equity multiplier must be lower than the industry average

  4. The firm's debt ratio is higher than the industry average

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Correct Option: D

Common size financial statements make it easier to compare firms ____________.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. of different sizes

  2. in different industries

  3. with different degree of leverage

  4. that use different inventory valuation methods (FIFO Vs. LIFO)

Show answer
Correct Option: A
Explanation:

Common size financial statements make it easier to compare firms of different sizes as they show all items as percentages and not in absolute figures which provides better comparison. 

Model which states decline in extra time needed to produce last unit, every time for cumulative quantity of doubled units produced is classified as _____________________.

book keeping and accountancy accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

  1. incremental unit average model

  2. incremental cost learning model

  3. incremental unit time learning model

  4. incremental price learning model

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Correct Option: C

Single entry system is known as incomplete system of recording accounting information.

book keeping and accountancy accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

  1. True

  2. False

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Correct Option: A

When a buyer returns damaged goods to the seller, the buyer receives ______________.

book keeping and accountancy accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

  1. credit note.

  2. pro forma invoice.

  3. debit note.

  4. consignment note.

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Correct Option: A

Double Entry System of Book-keeping is the most ______________ system of recording business transaction.

book keeping and accountancy accounting procedures - rules of debit and credit modern approach of rules of accounts meaning and classification of accounts classification of accounts

  1. perfect

  2. scientific

  3. complete

  4. all of the above

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Correct Option: D