Couldn't find one like this so thought of creating it for all things vce accounting. Could someone please help me with answering these questions?
Explain why business owners prefer maintaining individual records for accounts payable.
Explain why the invoice numbers in a purchases journal don't run in a sequence.
For the second question, it's probably because the business is trading with multiple suppliers. Each supplier will have different source documents, thus the order of purchase invoices is not chronological.
hi!! idk if this thread is still alive but i have a question - i don't really get the link between debt ratio and ROI.
I know that if debt ratio increases, there is more debt so less reliance on the owner causing a higher ROI. But why is that actually the case? I feel like there's some sort of link to A= L + OE since assets are funded by either L or O/E, but I don't fully understand the link.
Is it always that a high debt ratio is a high ROI and vice versa?
Yes you're right that it's related to A = L + O/E
All assets are funded by either L or O/E so it's usually one or the other. If there's a high debt ratio, it generally means high amounts of liabilities and lower assets. If the owner contributes assets, that increases assets, thus decreasing debt ratio, since there's more of a reliance on the owner.
Accordingly, capital also increases, which decreases ROI (unless the assets are productively used to generate profit).
So if you take out a loan, wouldn't that increase both liabilities and assets, so there's no change on debt ratio? Then how does debt ratio increase if you have more debt?