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Accounting questions
Accounting questions ch 1 - 4
| Question | Answer |
|---|---|
| Advantages of being ethically considerate | Environmental benefits, enhanced reputation and customer support and employees enjoy working in an ethical workplace |
| Disadvantages of being ethically considerate | Being ethical is often more expensive and it can be time consuming and disruptive |
| What is the use of a Balance Sheet | Being able to identify the assets, liabilities and owner’s equity of the business as at a point in time in order to assist in planning and decision making. |
| Benchmarks to compare Working Capital Ratio to | Previous years, Budget, Similar businesses |
| Strategies to Improve Working Capital Ratio | Owner may contribute cash to business, increase cash sales, sell non-performing (underperforming) non-current assets for cash or reduce current liabilities compared to current assets |
| What does high debt do to a business? | High debt makes the business less stable and increases the risk of business failure due |
| Advantages of Sole Proprietorship | Easy and cheep to set up, Owner receives all profits, Owner has complete control over decision making, Easy to sell or close down |
| Disadvantages of Sole Proprietorship | Unlimited liability, owner is personally responsible for all debts and losses and can lose personal assets. They have limited access to capital/money, limited access to skills/knowledge/ideas and heavy workload, stress and hours. |
| Advantages of a Partnership | Easy and cheep to set up, greater access to capital, skills, knowledge and ideas and can split income to take advantage of the Tax Free Threshold |
| Disadvantages of a Partnership | Unlimited liability, shared decision making may lead to conflict, a partnership has a limited life aswhen one partner leaves the partnership is dissolved |
| Advantages of a Proprietary Company | Limited liability, greater access to capital and knowledge, exists in perpetuity so it continues even when shares are bought and sold and pays tax at flat 30% |
| Disadvantages of a Proprietary Company | Expensive establishment and ongoing accounting and compliance costs and is under a higher level of government regulation |
| Advantages of a Public Company | Limited liability, greater access to capital and knowledge, exists in perpetuity and pays tax in its own name at 30% |
| Disadvantages of a Public Company | Expensive establishment and ongoing accounting and compliance costs, under a higher level of government regulation and required to have an audit undertaken which is costly |
| Advantages of Capital contribution | No set repayment dates, no interest |
| Disadvantages of Capital contribution | Limited funds, risky for owners if the business fails |
| Advantages of Retained earnings | No set repayment date, no interest |
| Disadvantages of Retained earnings | Only available if business is making a profit |
| Advantages of Trade credit | Can generate sales before business pays for goods, No interest (usually), Discounts available for early payment |
| Disadvantages of Trade credit | Can only be used to purchase inventory from suppliers, Can be charged interest for late payment |
| Advantages of Bank overdraft | Readily accessible and good for short term working capital needs |
| Disadvantages of Bank overdraft | High interest rates and fees (18-20%) and can be recalled at short notice |
| Advantages of Term loan | Good for large purchases that can be spread out over several years |
| Disadvantages of Term loan | Principle and interest repayments can impact on stability/long term viability of the business |
| Advantages of Leasing | Avoids large initial cash outflow, Good for assets which require frequent replacements |
| Disadvantages of Leasing | Pay interest but don’t own the asset |
| How do you work out how much GST is in a price? | divide by 11 |
| Benchmarks to Compare return on owner's investment to | Previous years, alternative use of owner’s money and similar businesses |
| Strategies to Improve Return on Owner’s Investment | Increase Net profit by increase sales, decrease expenses, decrease average owner’s equity or increase drawings to lower owner’s equity |
| What are the types of source documents? | Cash receipt, Electronic funds transfer (EFT) receipt, Cheque butt, Sales/purchase invoice , Bank statement, Statement of account, Delivery docket, Memo |
Created by:
SCP006
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