b. Lower efficiency because its gross profit margin is lower than that of the industry average. c. Higher efficiency because its profit margin is almost the same as the industry average. d. Higher efficiency because although its gross profit margin is lower than that of the industry average, its profit margin is almost the same as that of the industry average. e. Higher efficiency because its gross profit margin has increased closer to that of the industry average
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
The accountant for Pili’s Gadgets Shop prepared the following list of account balances from the entity’s records for the year ended June 30, 2020:
|
Sales Revenue |
$168,000 |
Cash |
$30,000 |
|
|
$14,500 |
Cost of Goods Sold |
$45,000 |
|
Equipment |
$48,000 |
Pili, Capital |
$27,000 |
|
Accounts Payable |
$17,000 |
Notes Payable |
$15,000 |
|
General & Admin Expense |
$50,000 |
Inventory |
$1,500 |
|
Selling Expense |
$6,000 |
Accumulated Depreciation |
$12,000 |
|
Income Taxes Payable |
$5,000 |
Income Taxes Expense |
$18,000 |
|
Interest Expense |
$3,000 |
Land |
$28,000 |
Additional Information:
Last year’s ending inventory and accounts receivable balances were $3,500 and $10,000 respectively. Sales are on credit and the credit term is 21 days. Ms. Pili, the owner, praised the shop manager for successfully increased the sales level in the current year.
Calculated ratios and the industry averages ratios in the related period are provided below:
|
Ratio |
Method of calculation |
|
Gross Profit Margin |
Gross Profit x 100 = x% Sales revenue |
|
Profit Margin |
Net Income afterTax x 100 = x% Sales revenue |
|
Inventory Turnover |
Cost of Goods Sold = x times Average Inventory |
Present the Assets section of the business’ classified balance sheet.
. Prepare a classified Income Statement for the business.
In analysing Polo’s Pet Gadgets Shop profitability, which ratios would you use:
Gross profit margin and profit margin
Inventory turnover and accounts receivable turnover
Cash per sales level
When analysing the shop’s profitability, which information from the Additional Information table provided above will be most useful to use?
Horizontal Analysis 45% increase.
Previous year gross profit and profit margin.
Industry average gross profit and profit margin.
Both b and c
Both a and b
Which of the following options, best describes the shop’s operating efficiency?
Lower efficiency because the accounts receivable has increased 45% in the current year.
Lower efficiency because its gross profit margin is lower than that of the industry average.
Higher efficiency because its profit margin is almost the same as the industry average.
Higher efficiency because although its gross profit margin is lower than that of the industry average, its profit margin is almost the same as that of the industry average.
Higher efficiency because its gross profit margin has increased closer to that of the industry average.
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