Question

4.(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).

Accepted Answer

(a) Management of the organisation; employees of the organisation; government; prospective investors; general public; banks.
(b)(i) Quick ratio = (Current assets − Stock)/Current liability. Used to test the ability of an organisation to meet its short-term debt obligation without relying on selling stock.
(ii) Net profit margin = (Net profit/Sales) ×100. Used to know the percentage of sales that translates into net profit.
(iii) Total assets turnover = Total sales/Total assets. Used to measure how much sales the assets of the business can generate.
(iv) Creditors payment period = (Trade creditors/Credit purchase) ×365. Used to know the average time taken to pay creditors.

WAEC Accounting 2018 Theory — Question 4

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