Chapter 8: Accounts: Interpreting Financial Performance
1. Net profit is ______.
- a measure of company performance after deducting operating expenses and interest but not taxes
- a simple measure of profit obtained from the sale of goods and services; also referred to as sales profit
- gross profit less all operating expenses but not interest and taxes
- indicator of profit in relation to sales value
2. A business charges a customer £100 and adds VAT at 17.5%, charging the customer a total of £117.50. How should this be treated in the profit and loss account?
- £100 as sales
- £117.50 as sales and £17.50 as an expense
- £117.50 as a sale
- £100 as sales and £17.50 as an expense
Answer: A
Explanation
The collection of VAT has no impact on the profit and loss account and does not appear as sales or expenses. The money is received from customers and paid to the tax authorities.
3. The difference between assets and liabilities is ______.
- gross profit
- gross assets
- net worth or net assets or, simply, equity
- net liabilities
Answer: C
Explanation
The difference between assets and liabilities is what the organisation has left for its owners.
4. Which of the following is NOT a current asset?
- cash
- plant and machinery
- debtors
- stock
Answer: B
Explanation
Current assets can be realised relatively quickly and comprise cash and those items that can be converted to cash fairly quickly.
5. Accrued liabilities are ______.
- the sum of creditors, and tax owed
- total current assets plus the long-term assets
- the difference between the total assets and total liabilities
- expenses incurred but not paid for
Answer: C
Explanation
Accrued liabilities are the difference between the total assets and total liabilities.
6. The number and type of KPI and frequency of measurement will vary for each organization and sector but some generic principles apply.
- True
- False
