Question 1

To see the firm's financial position over a period of time,people should look at its balance sheet.

Accepted Answer

A) True 
 B)False  False

Question 2

Douglas is preparing financial information and is making sure that total assets equal outstanding debt plus owner's equity.What financial statement is Douglas working on?

Accepted Answer

A)   statement of owner's equity
B)   statement of cash flows
C)   income statement
D)   balance sheet D

Question 3

Gross profit is the sales less the cost of goods sold

Accepted Answer

A) True 
 B)False  True

Question 4

Accrued expenses are operating expenses that have been incurred but not yet paid.

Accepted Answer

A) True 
 B)False

Question 5

What structures the flow of financial information to provide a complete picture of a firm's financial activities?

Accepted Answer

A)   accounting system
B)   company budget
C)   profit forecast
D)   cash flow statement

Question 6

Debt ratio is the ratio of total debt to total assets.

Accepted Answer

A) True 
 B)False

Question 7

The major difference between cash-basis accounting and accrual-basis accounting lies in when the firm reports revenue and expenses.

Accepted Answer

A) True 
 B)False

Question 8

Which statement best describes cash budgets?

Accepted Answer

A)   They treat income and expenses the same as they are treated on an income statement.
B)   They treat income and expenses differently than they are treated on an income statement.
C)   They are relatively unimportant in the life of a small business.
D)   They are tools for managing revenue.

Question 9

What does working-capital management focus on?

Accepted Answer

A)   cash,accounts receivable,and inventory
B)   cash,accounts receivable,and fixed assets
C)   cash,fixed assets,and inventory
D)   accounts receivable,accounts payable,and long-term investments

Question 10

A partner who handles the financial side of the business estimates that a new machine will useful for 10 years before it will have to be replaced.He plans to allocate one-tenth of the cost to each year that the machine is in use.What is the proper accounting term for this cost?

Accepted Answer

A)   allocation
B)   asset usage
C)   depreciation
D)   appropriation

Question 11

A financial manager reviews the firm's cash statement and realizes the company's current account at the bank does not go below a balance of $125,000.What should the financial manager do?

Accepted Answer

A)   use any excess cash to pay creditors in advance
B)   leave any excess cash in a chequing account for unforeseen needs
C)   invest any excess cash
D)   pay any excess cash to investors

Question 12

An accounting supervisor informs a college co-op student to record sales even though the customers will pay in the future.What kind of accounting does the company use?

Accepted Answer

A)   cash-basis
B)   accrual-basis
C)   revenue-basis
D)   sales-basis

Question 13

During the month of January,a company had sales of $70,000,received $50,000 in cash,incurred expenses of $55,000,and paid out $40,000 in cash.What is the company's net cash flow?

Accepted Answer

A)   -$5,00
B)   $10,000
C)   $15,000
D)   $20,000

Question 14

Financial leverage decreases a firm's return on equity.

Accepted Answer

A) True 
 B)False

Question 15

A company's manager of finance and administration is sorting assets to create a category of those that will be consumed or used up within one year.Which of the following will be part of this category?

Accepted Answer

A)   land
B)   inventories
C)   equipment
D)   buildings

Question 16

Financial projections are guarantees of a firm's future profitability.

Accepted Answer

A) True 
 B)False

Question 17

What objective should an accounting system provide?

Accepted Answer

A)   a detailed analysis of employee productivity
B)   an accurate and thorough picture of operating results
C)   current profit comparisons with competition
D)   up-to-date contact information of every shareholder

Question 18

A firm's cash flows can be projected from the pro forma income statement and balance sheet.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following would have a negative impact on cash flow?

Accepted Answer

A)   preparing an invoice quickly
B)   granting a cash discount
C)   paying an invoice before the due date
D)   aging accounts receivable

Question 20

One of the owners of a sports bar franchise wants to take extra money out of the business,given the organization's successful year.What accounting figure should he look at to determine how much money can be distributed to himself and the other owners?

Accepted Answer

A)   gross profit
B)   net profit
C)   gross revenue
D)   net revenue

Exam 13: Understanding Financial Statements and Forecasting

To see the firm's financial position over a period of time,people should look at its balance sheet.

Douglas is preparing financial information and is making sure that total assets equal outstanding debt plus owner's equity.What financial statement is Douglas working on?

Gross profit is the sales less the cost of goods sold

Accrued expenses are operating expenses that have been incurred but not yet paid.

What structures the flow of financial information to provide a complete picture of a firm's financial activities?

Debt ratio is the ratio of total debt to total assets.

The major difference between cash-basis accounting and accrual-basis accounting lies in when the firm reports revenue and expenses.

Which statement best describes cash budgets?

What does working-capital management focus on?

A partner who handles the financial side of the business estimates that a new machine will useful for 10 years before it will have to be replaced.He plans to allocate one-tenth of the cost to each year that the machine is in use.What is the proper accounting term for this cost?

A financial manager reviews the firm's cash statement and realizes the company's current account at the bank does not go below a balance of $125,000.What should the financial manager do?

An accounting supervisor informs a college co-op student to record sales even though the customers will pay in the future.What kind of accounting does the company use?

During the month of January,a company had sales of $70,000,received $50,000 in cash,incurred expenses of $55,000,and paid out $40,000 in cash.What is the company's net cash flow?

Financial leverage decreases a firm's return on equity.

A company's manager of finance and administration is sorting assets to create a category of those that will be consumed or used up within one year.Which of the following will be part of this category?

Financial projections are guarantees of a firm's future profitability.

What objective should an accounting system provide?

A firm's cash flows can be projected from the pro forma income statement and balance sheet.

Which of the following would have a negative impact on cash flow?

One of the owners of a sports bar franchise wants to take extra money out of the business,given the organization's successful year.What accounting figure should he look at to determine how much money can be distributed to himself and the other owners?