AS 91177 · 4 credits · External
Interpret accounts
Interpret accounting information for entities that operate accounting subsystems
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This standard asks you to analyze and explain financial information for small businesses (like shops or service providers) that keep separate accounting records for different parts of their operations. You'll calculate financial ratios and measures (like profit percentages, current ratios, and inventory turnover), then explain what they tell you about how the business is performing, whether it has enough money to pay its bills, and whether the owner is managing it well.
What to do, grades and common mistakes
- ·Calculate analysis measures such as profitability ratios (gross profit %, net profit %), liquidity ratios (current ratio), and management effectiveness measures (inventory turnover, age of accounts receivable)
- ·Describe what the financial measures show about the business's profitability, financial position (liquidity and stability), cash flows, and how well management is running the business
- ·Identify and explain trends in the financial information (comparing one year to the next or across different time periods)
- ·Explain the links and connections between different analysis measures and how they relate to each other
- ·Make recommendations to the business owner based on your analysis of the financial information
You calculate the required ratios accurately and describe what each one means about the business's performance, position, or management (e.g., 'The current ratio of 1.8:1 shows the business has $1.80 in current assets for every $1 of current liabilities').