Yr 12 Accounting Outcome 2

What is the primary purpose of the Profit and Loss Summary account?

• To calculate net profit or loss for the reporting period

• • To record all cash transactions for the business

• • To summarize the financial position of the business

• • To prepare the cash flow statement

Which of the following best explains the difference between cash and profit?

• • Cash is the total revenue earned, while profit is the total expenses incurred.

• • Cash refers to the inflows and outflows of money, while profit is the difference between revenue and expenses.

• • Cash is the net income of the business, while profit is the total assets owned.

• • Cash is the amount of money borrowed, while profit is the amount of money saved.

What is the main purpose of the Income Statement?

• • To report the financial position of the business

• • To summarize the cash inflows and outflows

• • To calculate the net profit or loss for a specific period

• • To record all transactions for the business

Which of the following is NOT included in the Cash Flow Statement?

• • Operating cash flows

• • Investing cash flows

• • Financing cash flows

• • Net profit

How is the Net Profit Margin calculated?

• Net Profit Margin=Net Profit / Total Assets x 100

• Net Profit Margin=Net Profit/ Sales Revenue x 100

• Net Profit Margin = Gross Profit / Sales Revenue x 100

• Net Profit Margin = Net Profit / Equity x 100

What does the Gross Profit Margin indicate?

• • The percentage of sales revenue retained as gross profit

• • The percentage of total assets retained as profit

• • The percentage of cash inflows retained as profit

• • The percentage of expenses covered by gross profit

What does the Cash Flow Cover ratio measure?

• • The ability of a business to cover its expenses with cash inflows

• • The ability of a business to repay its debts using net profit

• • The ability of a business to generate cash from investing activities

• • The ability of a business to cover its current liabilities with operating cash flows

Which financial statement is used to assess the liquidity of a business?

• Income Statement

• Balance Sheet

• Cash Flow Statement

• Profit and Loss Summary

What is the formula for calculating Gross Profit?

• Gross Profit=Sales Revenue−Operating Expenses

• Gross Profit=Sales Revenue−Cost of Goods Sold

• Gross Profit=Net Profit−Expenses

• Gross Profit=Sales Revenue−Net Profit

Which of the following is an example of a non-cash item that affects profit but not cash flow?

• • Loan repayment

• • Depreciation

• • Cash sales

• • Inventory purchase