Essential Book Keeping - Qp14

The statement is true because the primary objective of any business is to generate profit. Profit is the financial gain that a company earns after deducting all expenses and costs from its revenue. By making a profit, a business can increase its value and attract investors. Profitability is also essential for the growth and sustainability of a company, as it provides the resources needed for reinvestment, expansion, and innovation. Therefore, making a profit is a fundamental goal for businesses.

When credit is taken, it means that a transaction has occurred where the payment is deferred to a later date. In this case, if credit is taken, it means that the cash out figure in the cashbook needs to be adjusted to account for the effects of the credit transaction. This adjustment is necessary to accurately reflect the impact of the credit on the cash flow of the business. Therefore, the statement is true.

Accountants commonly use ratios to compare businesses to each other and to track the performance of a single business over different time periods. Ratios provide a quantitative measure that helps evaluate financial health, profitability, efficiency, and other aspects of a business. By comparing ratios, accountants can assess how one business stacks up against its competitors and how it has evolved over time. Therefore, the statement is true.

Credit given adjustments are particularly important if you rely on manual accounting via an analysed cashbook. This statement is true because credit given adjustments help in accurately recording and tracking the credit transactions in a manual accounting system. It ensures that all credit transactions are properly accounted for and reconciled in the cashbook, which is crucial for maintaining accurate financial records. Without credit given adjustments, there is a higher risk of errors and discrepancies in the accounting process.

The given equation states that Gross Profit plus Overheads equals Net Profit, which is incorrect. The correct equation should be Gross Profit minus Overheads equals Net Profit. Therefore, the answer is false.

Ratios are important in financial analysis because they provide a relative basis for understanding a company's performance. Expressing figures in ratios helps non-specialists to examine and compare a company's performance, as it is often easier to understand than a full set of accounts. Additionally, ratios add perspective to the accounts by comparing figures on a relative basis, which is more meaningful than simply quoting absolute figures. Ratios also allow for comparison across industries and over time, making it easier to assess a company's performance in relation to its competitors and its own historical performance. Finally, ratios can quickly identify trends, enabling analysts to spot potential problems or opportunities.

The given statement "Profit = Cash Received - Cash Spent" is incorrect. The correct formula for calculating profit is "Profit = Revenue - Expenses." Profit is determined by subtracting the total expenses incurred from the total revenue generated, not by subtracting cash spent from cash received. Therefore, the correct answer is False.

To eliminate profit fluctuations caused by changing stock levels, we do not need to know three things. The statement suggests that there are certain factors that need to be known in order to address the issue of profit fluctuations caused by changing stock levels. However, the correct answer is False, indicating that this statement is incorrect. Therefore, there is no specific requirement of knowing three things in order to eliminate profit fluctuations caused by changing stock levels.