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2018 WAEC Accounts - Principles of Accounts Theory a) List six users of accounting information (b) State the formula and the use of...

Accounts - Principles of Accounts
WAEC 2018

a) List six users of accounting information

(b) State the formula and the use of each of the following accounting ratios:
i. Quick ratio
ii. Net profit margin
iii. Total assets turnover
iv. Creditors payment period (in days)

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Explanation

(a) Users of accounting information

(i) Management
(ii) Employees
(iii) Government agencies
(iv) Investors
(v) Bankers/lenders/debenture holders
(vi) Customers/debtors
(vii) Suppliers/creditors
(viii) Trade Unions
(ix) Trade Associations
(x) General Public
(xi) Shareholders/owners/employers
(xi) Financial analysts
(xii) Auditors

(b) Formula and use of ratios

(i) Quick Ratio: Current assets - Inventory
                              Current liabilities

This ratio is used to measure the ability of a business to pay its short-term debts from current assets, after eliminating inventories.

(ii) Net profit margin: \(\frac{\text{Net profit x 100}}{ sales}\)

This ratio is used to determine the net profit earned on each naira of sales made by the business.

(iii) Total assets turnover = \(\frac{\text{sales x 100}}{\text{total assets}}\)

This is ratio is used to measure how efficiently a business can use its assets to generate sales

(iv) Creditors payment period (in days) = \(\frac{\text{trade creditors x 365 days}}{\text{credit purchases}}\)

The ratio measures on average, the number of days that the business takes to pay its trade creditors/people it owes.


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WAEC May/June 2024 - Practice for Objective & Theory - From 1988 till date, download app now - 99995
WAEC Past Questions, Objective & Theory, Study 100% offline, Download app now - 24709
WAEC offline past questions - with all answers and explanations in one app - Download for free
WAEC offline past questions - with all answers and explanations in one app - Download for free
WAEC Past Questions, Objective & Theory, Study 100% offline, Download app now - 24709
WAEC May/June 2024 - Practice for Objective & Theory - From 1988 till date, download app now - 99995