Unit 3 AOS 1
What is the purpose of a General Journal?
To record transactions and adjustments that are not recorded in the specialised journals.
What is gross profit?
Sales revenue minus cost of goods sold.
What is a budget?
A financial plan estimating expected income and expenses for a future period.
What is a financial indicator?
A measure used to assess a business's financial performance or position.
A business has sales revenue of $50,000 and cost of goods sold of $30,000. Calculate its gross profit.
$50,000 − $30,000 = $20,000.
What is the purpose of a Trial Balance?
To check that total debits equal total credits in the ledger accounts.
What does the gross profit margin measure?
Gross profit as a percentage of sales revenue.
What is a cash budget used for?
To estimate future cash receipts and payments and identify possible cash shortages or surpluses.
What does liquidity measure?
A business's ability to meet its short-term financial obligations.
Equipment costs $15,000, has a residual value of $3,000 and a useful life of 4 years. Calculate annual straight-line depreciation.
$15,000 − $3,000÷ 4 = $3,000 per year.
A business buys inventory for $1,100, including $100 GST. Calculate the inventory cost excluding GST.
$1,100 − $100 = $1,000.
Sales revenue is $40,000 and cost of goods sold is $16,000. Calculate gross profit?
$40,000 − $16,000 = $24,000.
Budgeted sales are $20,000 and actual sales are $18,000. Calculate the sales variance.
$18,000 − $20,000 = $2,000 unfavourable.
Current assets are $30,000 and current liabilities are $15,000. Calculate the working capital ratio.
$30,000 ÷ $15,000 = 2:1.
A business has current assets of $24,000 and current liabilities of $12,000. Calculate its working capital ratio.
$24,000 ÷ $12,000 = 2:1.
Explain why a Balance Day Adjustment is required for an accrued expense.
To recognise the expense in the reporting period in which it was incurred, even if it has not yet been paid.
Explain how a decrease in the accounts receivable turnover period can benefit a business.
Customers pay sooner, increasing cash inflows and potentially improving liquidity.
Explain one reason why a business might prepare a budget.
To plan future financial activities and identify potential cash shortages before they occur.
Explain one financial factor a business should consider before replacing a vehicle.
The purchase cost and whether expected savings in operating expenses justify the cost.
Explain why a business can make a profit but still have insufficient cash to pay its expenses.
Some sales may be made on credit, meaning revenue and profit are recognised before the cash is received
Explain how failing to record depreciation affects net profit and the carrying value of a non-current asset.
Depreciation expense is understated, so net profit is overstated and the asset's carrying value is overstated.
A business's net profit increases, but its net profit margin decreases. Explain how this can occur.
Net profit may increase in dollar terms while sales revenue increases at a faster rate, causing net profit to represent a smaller percentage of sales.
A business expects a cash shortage next month. Explain one strategy it could use to improve its cash position without taking out a loan.
It could follow up overdue accounts receivable to collect cash sooner, increasing cash available for payments.
A business wants to increase sales by offering longer credit terms. Explain one benefit and one drawback.
Benefit: Sales may increase by attracting more customers. Drawback: Cash may be received later, increasing the risk of cash shortages and bad debts.
A business's net profit has decreased. Identify one possible reason for the decrease and explain one action the owner could take to improve net profit.
Expenses may have increased. The owner could review expenses and reduce unnecessary costs, increasing net profit if revenue and other factors remain unchanged.