Deck 18: Financial Management

Question 1

Investors and entrepreneurs should have an understanding of financial issues.

Answer 1

True

Question 2

Financial managers are responsible for budgeting,auditing,and advising top management on financial matters.

Answer 2

True

Question 3

The chief financial officer of a company is responsible for managing cash,accounts receivable,and inventory.

Answer 3

True

Question 4

Finance is the function in a business that acquires funds for the firm and manages those funds within the firm.

Question 5

One of the most common ways for a firm to fail financially is poor control over cash flow.

Question 6

Financial management is more important for a large firm than it is for a small firm.

Question 7

The duties and responsibilities of a financial manager are virtually identical to the duties and responsibilities of an accountant.

Question 8

Financial managers use data prepared by accountants to develop strategies for improving the financial performance of the firm.

Question 9

There is actually a stronger relationship between finance and marketing than there is between finance and accounting.

Question 10

Undercapitalization refers to the problem of insufficient start-up funds.

Question 11

Inability to attract and retain qualified employees is one of the most common ways for a firm to fail financially.

Question 12

A comptroller is responsible for the acquiring and managing of funds for an organization.

Question 13

Financial managers are responsible for controlling cash flows.

Question 14

A financial manager makes recommendations to top executives regarding strategies for improving the financial strength of a firm.

Question 15

The chief financial officer (CFO)is responsible for accounting and financial functions.

Question 16

Financial managers examine the data prepared by accountants and make recommendations to top management regarding strategies for improving the financial performance of the company.

Question 17

While finance is a critical activity for profit-seeking organizations,by definition nonprofit organizations are not required to fulfill the finance function.

Question 18

One activity of the accounting function is to collect payments from overdue customer accounts.

Question 19

Inadequate control of expenses represents a common financial problem that contributes to business failure.

Question 20

Managing a firm's resources so that it can meet its goals and objectives is the goal of financial accounting.

Question 21

Mark manages credit and collections at Polly Parrot Pet Supplies,Inc.He is responsible for accounts receivable and accounts payable.These activities suggest that his job is in financial management.

Question 22

Tax management by financial managers involves the development of strategies to evade tax liabilities.

Question 23

An internal auditor is responsible for paying the company's bills and collecting overdue payments from customers.

Question 24

A comptroller is the chief accounting officer of an organization.

Question 25

The first step in financial planning is to develop a budget to better control costs.

Question 26

As a financial manager,Sabrina's responsibilities include the interpretation of financial statements provided by the firm's accountants and the preparation of recommendations to top management.

Question 27

Tax payments are important to the finance manager because they represent a cash inflow to a firm.

Question 28

To be effective,an internal auditor must be critical of any improprieties or deficiencies found in the financial activities of the firm.

Question 29

One step in the financial planning process is to establish financial control procedures that allow managers to monitor the organization's performance.

Question 30

The overall objective of financial planning is to optimize the firm's profitability and make the best use of its money.

Question 31

Generally accepted accounting principles require that any assessment of a firm's financial statements be performed by independent outside auditors.

Question 32

Inadequate expense control typically occurs as a result of undercapitalization.

Question 33

The importance of financial managers to firms with large cash inflows is greater than for firms with smaller cash flows.

Question 34

Financial managers are responsible for the management of accounts receivable and accounts payable.

Question 35

Accountants truly represent the financial managers of a business.

Question 36

Financial managers are responsible for buying merchandise on credit and collecting payment from accounts receivable.

Question 37

Several big firms got into financial trouble in 2008.The problems were not isolated to just a few industries.It stretched from financial services companies to the U.S.automakers.The government proceeded with a number of bailouts.

Question 38

According to the Spotlight on Small Business box in Chapter 18,small business owner,James "Hoss" Boyd knows all too well about potential financial failure.Of the three common reasons for financial failure,only one,his inability to control his own costs is keeping his business on the brink of failure.

Question 39

Organizations can avoid financial difficulties by marketing products that generate a significant rate of growth in sales revenue.

Question 40

Is there something in a name? April Gardner was told that she would grow-up to be a "master gardener".She didn't really believe that stuff,but now she finds herself in charge at a large city-owned botanical garden.She is requiring her staff to pursue continuing education.To put her money where her mouth is,she will enroll in a couple of accounting and finance courses at the local community college because this is an area where she is weak.This is a good plan - especially since she is the boss.

Question 41

To be effective,budgets are prepared independently of organizational forecasts.

Question 42

The primary focus of a cash flow forecast is the firm's revenue and costs for the current operating period.

Question 43

A cash budget helps managers anticipate borrowing,debt repayment,operating expenses,and short-term investment opportunities.

Question 44

Budgets are prepared after the financial forecasts are developed.

Question 45

A firm's short-term financial forecast provides a projected sales estimate.

Question 46

The timing of a short-term forecast is more important than the forecast's accuracy.

Question 47

A capital budget highlights the expected funds provided by owner investments.

Question 48

A capital budget highlights a firm's spending plans for major assets,such as property,buildings,and equipment.

Question 49

An operating budget analyzes the firm's spending plans for long-lasting assets that require large sums of money.

Question 50

A capital budget combines all of the other budgets into one detailed plan for monitoring the operations of the firm.

Question 51

The main objective of financial control is to establish priorities for the purchase of plant and equipment.

Question 52

The long-term financial forecast gives top management some sense of the profit potential of various strategic decisions.

Question 53

As indicated in the Making Ethical Decisions box,financial controls not only help a firm increase earnings,the process protects a firm from mismanaging funds and even overstating expenses.

Question 54

A budget reflects management's expectations for revenues and allocates the use of specific resources throughout the firm.

Question 55

Since short-term financial forecasts predict expected future events,they should not be influenced by recent financial statements.

Question 56

The long-term financial forecast plays a crucial part in the company's long-term strategic plan.

Question 57

The operating (master)budget identifies the funds (and the allocation of those funds)required to operate a business at a projected level of revenue.

Question 58

A firm's most recent financial statements often serve as the basis for predicting future sales,costs and expenses.

Question 59

Financial control is a process where firms compare actual revenues and costs with budgeted revenues and costs.

Question 60

By identifying variances from the financial plan,managers are able to focus on those departments that require corrective action.

Question 61

Smaller firms have greater access to capital than larger firms.

Question 62

Financial managers generally oppose credit sales because of the impact on cash flows.

Question 63

The concept of the time value of money is based on the interest-earning power of money.

Question 64

Big Bear Ski Lodge's cash budget for the month of March,2011,shows a negative amount.Due to the fact that the months of January and February were quite lucrative and showed positive amounts,the finance manager will not borrow any money on the short-term to cover for March's deficit.

Question 65

A company's capital budget helps management plan for cash shortages or surpluses.

Question 66

With added competition,firms prefer not to offer the availability of credit sales to their customers.

Question 67

)One very important responsibility of the finance department in both large and small businesses involves acquiring needed funds to operate the business.

Question 68

As a financial manager of a small firm,Jerry needs to determine how much his company will have to borrow in the coming months,and when the borrowed funds will be needed.The preparation of the cash budget will help.

Question 69

Preferred Pet Care,Inc.plans to purchase a second mobile unit next year that will cost an estimated $55,000.The finance manager will include this projected purchase in the company's capital budget.

Question 70

Forecasting means determining how closely the actual revenue and expense results matched up with the predicted revenues and expenses.

Question 71

According to the Spotlight on Small Business box included in Chapter 18,the recession has caused small business customers to take longer to pay.This has placed added burden on the small business owner.

Question 72

Budgets assist managers in performing the functions of planning and control.

Question 73

Karen,a financial manager with Bigbux Incorporated,regularly compares actual revenues and expenses against their projected values.After identifying areas with significant deviations from planned values,she investigates to find the cause of these variances.Karen's activities represent the steps involved in the preparation of Bigbux's capital budget.

Question 74

Preferred Pet Care,Inc. ,a mobile pet care company is planning for the future.The company owners (two seasoned veterinarians)have brought together the vice president of marketing and the director of information systems to talk about how their expansion campaign: "We come to you!" The talks are in the preliminary stages,so there is no need to concern the finance team at this time because cash flow is currently not a problem.

Question 75

Big Bear Ski Lodge owners know that the lifts on the north slope will need replacing in the next two years.Three months prior to replacement,they will include the expenditure in their cash budget.

Question 76

Effective financial managers evaluate customers' ability to pay for merchandise purchased on credit.

Question 77

When it involves securing capital,the recession has not affected small businesses as much as large businesses.

Question 78

Finance managers need funds for capital purchases,but seldom for the day to day operations.

Question 79

A budget's primary purpose is to provide managers with a financial summary of past operations.

Question 80

When his firm is owed money,the financial manager tries to collect as early as possible.