FOUNDATIONS OF ACCOUNTING PEREGRINE
GLOBAL 2026 STUDY GUIDE COMPLETE
ACCOUNTING PRINCIPLES FINANCIAL
STATEMENTS AND PRACTICE QUESTIONS
◉ Horizontal analysis. Answer: Analysis of percentage increases and
decreases in financial statements across time.
The amount of each line item on the most recent statement is
compared with the related item on earlier statements, and
expressed as a percentage change
◉ Vertical analysis. Answer: An percentage analysis that is used to
show the relationship of each component to the total within a single
statement.
The balance sheet is analyzed by stating each asset item as a percent
of total assets. Each liability and stockholders equity item is stated
as a percent of total liabilities and stockholders equity.
◉ Common side statements. Answer: Horizontal and vertical
analyses are useful in assessing trends, in relationships and financial
conditions, and operations of a business
◉ Common size income statements. Answer: can compare to
businesses or more
,◉ Solvency and profitability. Answer: The ability of a business to
repay its debts and earn income
◉ Solvency analysis. Answer: Focuses on the ability of a business to
pay, or otherwise satisfy its current and noncurrent liabilities
◉ Current position analysis, working capital. Answer: Using metrics
to assess a business, is ability to pay its current liabilities
◉ Current ratio. Answer: current assets divided by current liabilities
◉ Quick ratio. Answer: quick assets/current liabilities
◉ Accounts Receivable analysis. Answer: sales on account increase
accounts receivable, whereas collections from customers decrease
accounts receivable. It is desirable to collect receivables as promptly
as possible. The cash generated by prompt collections from
customers may be used to pay or avoid current liabilities and be
used in operations for purposes, such as purchasing merchandise in
large quantities at lower prices.
◉ Accounts Receivable Turnover Ratio. Answer: net credit
sales/average net accounts receivable
, ◉ number of days' sales in receivables. Answer: Average Accounts
Receivable / Average Daily Sales
◉ Inventory turnover ratio. Answer: cost of goods sold/average
inventory
◉ Ratio fixed assets to long-term liabilities. Answer: ratio of fixed
assets to long-term liabilities is a solvency measure that indicates
the margin of safety for node holders and bond holders. It also
indicates the ability of a business to borrow additional funds on a
long-term basis.
◉ Ratio of liabilities to stockholders equity. Answer: Claims against
the total assets of a business are divided into two groups, one claims
of creditors and two claims of owners. The relationship between the
total claims of the creditors and owners is a solvency measure that
indicates the margin of safety for creditors.
◉ Time Interest Earned. Answer: The higher, the ratio, the lower, the
risk that interest payments will not be made, if earnings decrease.
Dividing the sum of the income before taxes and interest expense.
◉ Profitability and market analysis. Answer: Profitability analysis
focuses, primarily on the relationship between operating results as
GLOBAL 2026 STUDY GUIDE COMPLETE
ACCOUNTING PRINCIPLES FINANCIAL
STATEMENTS AND PRACTICE QUESTIONS
◉ Horizontal analysis. Answer: Analysis of percentage increases and
decreases in financial statements across time.
The amount of each line item on the most recent statement is
compared with the related item on earlier statements, and
expressed as a percentage change
◉ Vertical analysis. Answer: An percentage analysis that is used to
show the relationship of each component to the total within a single
statement.
The balance sheet is analyzed by stating each asset item as a percent
of total assets. Each liability and stockholders equity item is stated
as a percent of total liabilities and stockholders equity.
◉ Common side statements. Answer: Horizontal and vertical
analyses are useful in assessing trends, in relationships and financial
conditions, and operations of a business
◉ Common size income statements. Answer: can compare to
businesses or more
,◉ Solvency and profitability. Answer: The ability of a business to
repay its debts and earn income
◉ Solvency analysis. Answer: Focuses on the ability of a business to
pay, or otherwise satisfy its current and noncurrent liabilities
◉ Current position analysis, working capital. Answer: Using metrics
to assess a business, is ability to pay its current liabilities
◉ Current ratio. Answer: current assets divided by current liabilities
◉ Quick ratio. Answer: quick assets/current liabilities
◉ Accounts Receivable analysis. Answer: sales on account increase
accounts receivable, whereas collections from customers decrease
accounts receivable. It is desirable to collect receivables as promptly
as possible. The cash generated by prompt collections from
customers may be used to pay or avoid current liabilities and be
used in operations for purposes, such as purchasing merchandise in
large quantities at lower prices.
◉ Accounts Receivable Turnover Ratio. Answer: net credit
sales/average net accounts receivable
, ◉ number of days' sales in receivables. Answer: Average Accounts
Receivable / Average Daily Sales
◉ Inventory turnover ratio. Answer: cost of goods sold/average
inventory
◉ Ratio fixed assets to long-term liabilities. Answer: ratio of fixed
assets to long-term liabilities is a solvency measure that indicates
the margin of safety for node holders and bond holders. It also
indicates the ability of a business to borrow additional funds on a
long-term basis.
◉ Ratio of liabilities to stockholders equity. Answer: Claims against
the total assets of a business are divided into two groups, one claims
of creditors and two claims of owners. The relationship between the
total claims of the creditors and owners is a solvency measure that
indicates the margin of safety for creditors.
◉ Time Interest Earned. Answer: The higher, the ratio, the lower, the
risk that interest payments will not be made, if earnings decrease.
Dividing the sum of the income before taxes and interest expense.
◉ Profitability and market analysis. Answer: Profitability analysis
focuses, primarily on the relationship between operating results as
