Accounting Unit 1 & 2

Gross profit

The amount a business has earned from operational revenues and expenses only.

Net profit

The amount a business has earned from all (operating and other) revenues and expenses.

Profitability

How efficiently a business turns its sales into actual profit.

Liquidity

How efficiently a business can turn its assets (inventories) into cash.

Gross profit ratio

How much of Net Sales becomes Gross Profit (and how much Cost of Goods Sold is used).

Net profit ratio

How much of Total Revenues becomes Net Profit (and how much is used by expenses)

Return on owner’s equity

How much a business owner receives, relative to how much cash they’ve put into the business.

Turnover of inventories

How many times or in how many day (of a year) inventories are sold.

Turnover of accounts receivable

How many times or in how many days (of a year) accounts receivables are paid back.

Internal controls

The polices, procedures and systems a business uses to protect assets and ensure accurate financial records.

Statement of cash flows

Bank reconciliation

Relationship between gross profit and net profit

Relationship between

Relationship between

Relationship between

Relationship between

Relationship between

The effect of

The effect of

The effect of

The effect of

The effect of

The effect of

The effect of

Turnover of inventories (equation)

Turnover of accounts receivable (equation)

Gross profit ratio (equation)

Net profit ratio (equation)

Return on owner’s equity (ratio)