Double Entry system of accounting

Double Entry Accounting is the system of accounting in which each transaction has equal debit and credit effects, thus ensuring that the accounting equation remains in balance. History of Double Entry System of Accounting The double entry system of accounting was first introduced by an Italian mathematician “Fra Luca Pacioli” who wrote the first book …

Read more

Accounting ratios and their classification

What is the financial/accounting ratio? A ratio is a relationship between two quantities by dividing one quantity by another. Financial/accounting ratios help the analyst in making meaningful comparisons of a firm’s financial data at different points of time and with other firms. An accounting ratio is simply one accounting figure expressed in terms of another. …

Read more

Gross profit ratio

Gross Profit Ratio – Definition Gross profit ratio (or gross profit margin) shows the gross profit as a percentage of net sales. The ratio provides a pointer of the company’s pricing policy. Certain businesses aim at a faster turnover through lower prices. Such businesses would have a lower gross profit percentage but a larger volume of …

Read more

Average stock

Average stock or average inventory is equal to stock at the beginning of the period plus stock at the ending of the period divided by two. It represents the investment a business has made in inventory. Formula Average stock is arrived at using the following formula: It can be calculated for each class of stock, namely raw materials, work in progress …

Read more

Assets turnover ratio

What is Assets turn over ratio? Assets turnover ratio shows the relationship between the value of total assets held by a company to the value of its annual sales (turnover). Total assets turnover ratio may appear to be unnatural ratio, yet it is helpful in assessing how well the assets of the business are being used. After all, …

Read more

Operating assets turnover ratio

Operating assets turnover ratio (also known as current assets turnover ratio) is an improvement on the total assets turnover ratio. It shows the number of times operating assets are turnover in the year. Operating assets for this purpose are the current assets. Operating or current assets are closely linked to volume of business. Stocks levels …

Read more

Return on equity (ROE) ratio

What is Return on Equity (ROE)? -Definition The return on equity ratio (ROE ratio) is calculated by expressing net profit attributable to ordinary shareholders as a percentage of the company’s equity. Equity of a company comprises of paid-up ordinary share capital, reserves and unappropriated profit. This represents the total interest of ordinary shareholders in the …

Read more

Return on capital employed (ROCE) ratio

Definition of Return on Capital Employed Return on capital employed (ROCE) ratio is calculated by expressing profit before interest and tax as a percentage of total capital employed. This ratio aims at showing how well a company has used its total long term funds. A high return on the capital employed ratio is the indication …

Read more

Need of comparing financial performance

At the end of each financial year every company produces a trading and profit and loss account (or income statement), an appropriation account (or statement of retained earnings) and a balance sheet. Essentially these statements present, in a summarized form, all the information recorded in the company’s accounting books. Results disclosed by these statements are …

Read more

Net profit ratio

What is Net Profit (NP) Ratio? Net profit ratio (also known as net profit margin) is the calculation of net profit after tax as a percentage of net sales. Formula The Formula to calculate NP ratio is as: Both the components of the formula (i.e., net profit and net sales) are usually available from trading and …

Read more

Depreciation MCQs Quiz

Take a quick Multiple Choice Questions (MCQs) test about Depreciation. These MCQs can help you to prepare for your exams, interviews and different tests. Just click the “start quiz” button and start Depreciation MCQs quiz. If you find difficulty in answering these questions, read the ‘Depreciation‘ chapter thoroughly from the ‘Financial Accounting’ section of the …

Read more

Earnings per share (EPS) ratio

Earnings per share ratio is effectively a restatement of return on equity (ROE) ratio. While return on equity ratio is calculated as a percentage, taking total net profit and total equity, earnings per share ratio shows how much profit has been earned by each ordinary share (common share) in the year. Formula Net profit attributable …

Read more

Price earnings ratio

Price earnings ratio (also known as price to earnings ratio or P/E ratio) is the ratio of market value of the company’s ordinary (common) share to earnings per share.  It shows the number of times the market price of a company’s share is higher than its earnings per share for the last twelve months. It is therefore also termed as …

Read more

Earnings yield ratio

Earnings yield ratio is an effective restatement of price earnings ratio. It shows earnings per share as a percentage of the market value of the ordinary share. It is arrived at by dividing the earnings per share (EPS) for the last 12 months by the current market value of the share and multiplying the result by 100. …

Read more

Dividend payout ratio

Dividend payout ratio shows what portion of available profits is distributed away as dividend. Hence, it also indicates what portion is being reinvested in the business. The dividend payout ratio tells us what percentage of the firm’s earnings are being paid to Equity Shareholders in the form of dividends. Formula Dividend payout ratio is the ratio …

Read more

Dividend coverage ratio

Dividend coverage ratio shows the number of times the dividend is covered by available profit and is calculated separately for each class of shares. Formula For preference shares: and for ordinary (common) shares: Example Profit before tax: $480,000 Corporation tax rate: 50% Dividend to preference shareholders: $15,000 Dividend to ordinary shareholders: $25,000 Calculate dividend coverage …

Read more

Dividend yield ratio

Dividend yield ratio shows the percentage return to the investor on the market value of the preference or ordinary share he owns. Like dividend coverage ratio, this ratio is also calculated separately for each class of shares. Formula For preference shares: and for ordinary shares: Dividend is very often a major part of all that …

Read more

General ledger – MCQs

Take a quick Multiple Choice Questions (MCQs) test about General Ledger. These MCQs can help you to prepare for your exams, interviews and different tests. Just click the “start quiz” button and start general ledger MCQs quiz. If you find difficulty in answering these questions, read ‘General Ledger‘ chapter thoroughly from explanation section of the website. …

Read more

Introduction to accounting – Q & A

Test your learning about ‘introduction to accounting’ chapter by answering 29 short questions given below. We suggest you try to answer each question yourself before clicking on the ‘see answer’ button. If you find difficulty in answering these questions, read ‘introduction to accounting‘ chapter thoroughly from explanation section of the website.

General ledger – Questions & Answers

Test your learning about ‘General ledger’ chapter by answering 10 short questions given below. We suggest you try to answer each question yourself before clicking on the ‘see answer’ button. If you find difficulty in answering these questions, read ‘General ledger‘ chapter thoroughly from the explanation section of the website.

Introduction to accounting – MCQs

Take a quick Multiple Choice Questions (MCQs) test about Introduction to accounting. These MCQs can help you to prepare for your exams, interviews and different tests. Just click the “start quiz” button and start the introduction to accounting MCQs quiz. If you find difficulty in answering these questions, read ‘Introduction to accounting‘ chapter thoroughly from explanation …

Read more

General journal – MCQs

Take a quick Multiple Choice Questions (MCQs) test about General Journal. These MCQs can help you to prepare for your exams, interviews and different tests. Just click the “start quiz” button and start General Journal MCQs quiz. If you find difficulty in answering these questions, read ‘General Journal‘ chapter thoroughly from explanation section of the website. …

Read more

General journal – Q & A

Test your learning about ‘General journal’ chapter by answering 10 short questions given below. We suggest you try to answer each question yourself before clicking on the ‘see answer’ button. If you find difficulty in answering these questions, read ‘General journal‘ chapter thoroughly from the explanation section of the website.

Transaction analysis – MCQs

Take a quick Multiple Choice Questions (MCQs) test about Transaction analysis. These MCQs can help you to prepare for your exams, interviews and different tests. Just click the “start quiz” button and start Transaction analysis MCQs quiz. If you find difficulty in answering these questions, read ‘Transaction analysis‘ chapter thoroughly from explanation section of the …

Read more

Transaction analysis – Q & A

Test your learning about ‘transaction analysis’ chapter by answering 10 short questions given below. We suggest you try to answer each question yourself before clicking on the ‘see answer’ button. If you find difficulty in answering these questions, read ‘transaction analysis‘ chapter thoroughly from explanation section of the website.

Accounting equation – Q & A

Test your learning about ‘accounting equation’ chapter by answering 10 short questions given below. We suggest you try to answer each question yourself before clicking on the ‘see answer’ button. If you find difficulty in answering these questions, read ‘accounting equation‘ chapter thoroughly from explanation section of the website.

Accounting equation

The properties owned by a business are called assets and the rights or claims to the properties are referred to as equities. For every business, the sum of the rights to the properties is equal to the sum of properties owned. The relationship between the two may be expressed in the form of an equation. …

Read more

Accounting equation – MCQs

Take a quick Multiple Choice Questions (MCQs) test about Accounting Equation. These MCQs can help you to prepare for your exams, interviews, and different tests. Just click the “start quiz” button and start the accounting equation MCQs quiz. If you find difficulty in answering these questions, read the ‘Accounting Equation‘ chapter thoroughly from the explanation …

Read more

Realization Principle of accounting

Realization principle of accounting – Definition The realization principle of accounting revolves around the determination of the point of time when revenues are earned. The concept followed is that revenue is realized when goods and services produced by a business enterprise are transferred to a customer either for cash or some other asset or for …

Read more

Accounting Principles and Concepts MCQs Test

Now it’s time to assess how much you have learned about Accounting principles and concepts. We have prepared the MCQs quiz for this chapter. Go and take the quiz to clear your concepts about Accounting principles and concepts. If you face any difficulty to answer the question we advise you to read this topic thoroughly …

Read more