Indicate whether the following statements are true or false:

An income statement is based on the profit and loss account.

True

False

A balance sheet is like a photo of a company at a particular point in time.

True

False

A profit and loss statement shows how much cash (or cash equivalents) enters and leaves a company.

True

False

Cash flow statements help you determine the net worth of a company.

True

False

Assets less Equity is equal to Liabilities.

True

False

Assets less Liabilities is equal to Equity.

True

False

Property, Plant and Equipment is a current asset.

True

False

Inventory is a Quick asset

True
False

Liabilities are presented on the face of Statement of Financial Position.

True

False

A current ratio of 1.2 to 1 indicates that a company's current assets exceed its current liabilities.

True

False

Multiple choice questions

An income statement is based on which ONE of the following equations?

Income = Sales – Salary expenses

Income = Sales + Assets

Profit = Income – Expenses

Profit = Fixed assets + Current assets

Which ONE of the following statements about a Profit and Loss Account is NOT correct?

A Profit and Loss Account shows how much money the business will make after all expenses are taken
into consideration
A Profit and Loss Account can help business owners identify cash flow problems

A Profit and Loss Account shows the net profit of a company

A Profit and Loss Account shows sales and expenses over a period of time, rather than at a point in time

Indicate which ONE of the following statements about a Balance Sheet is FALSE:

A Balance Sheet is the same thing as a statement of net worth

An up-to-date Balance Sheet is essential if a business owner wants to arrange additional finance

In a Balance Sheet, total assets must be the same as total liabilities plus equity

A Balance Sheet gives the most complete picture possible of a company’s financial position

Short problems

Which one of the following is primarily interested in the liquidity of a company?

a. Government agencies

b. Shareholders

c. Long-term creditors

d. Short-term creditors

Which one of the following is not a characteristic generally evaluated in analyzing financial statements?

a. Liquidity

b. Profitability

c. Marketability

d. Solvency

Each of the following is included in computing the acid-test ratio except

a. cash.

b. inventory.

c. receivables.

d. short-term investments.

Long-term creditors are usually most interested in evaluating

a. liquidity and solvency.

b. solvency and marketability.

c. liquidity and profitability.

d. profitability and solvency.

A company has annual Sales of $328,000 with Cost of Goods Sold $142,000. What is the company’s
Gross Profit?

$470,000

$186,000

$142,000

$328,000

A company has annual Sales of $250,000 with a Gross Profit of $78,000. What is the company’s Cost of
Goods Sold?

$328,000

$172,000

$94,000

$78,000

A company has Cost of Goods Sold of $500,000 with a Gross Profit of $130,000. What is the company's
Sales?

$370,000

$260,000

$0

$630,000

Simple Problems

Company X has $1,500,000 total Assets and $450,000 total Liabilities. How much is company X Equity?
Waters Department Store had net credit sales of €24,000,000 and cost of goods sold of €15,000,000 for
the year. The average inventory for the year amounted to €2,000,000. Inventory turnover for the year
is?

A company has an accounts receivable turnover of 10 times. The average net accounts receivable during
the period are ¥700,000,000. What is the amount of net credit sales for the period?

If the average collection period is 50 days, what is the accounts receivable turnover?

Parr Hardware Store had Gross Profit of $850,000 and cost of goods sold of $5,000,000 for the year. The
Accounts Receivable balance was $780,000. The accounts receivable turnover was?