Deck 15: Budgeting and Controlling Operations and Taxes

Question 1

What is the function of cash flow budget?

A) It plans expenditures for obtaining, expanding, and replacing physical facilities.
B) It forecasts sales and allocates expenses for achieving them.
C) It forecasts the amount of money needed to pay expenses and make other purchases.
D) It plans and controls revenue and expenses in order to obtain desired profits.

Answer 1

C

Question 2

_____ control is the careful planning and control of all financial activities of a firm.

A) Budgetary
B) Auditing
C) Production
D) Operating

Answer 2

A

Question 3

_____ is the process of ensuring that organizational goals are achieved.

A) Audit
B) Acid test
C) Control
D) Credit management

Answer 3

C

Question 4

Which of the following is a characteristic of cash flow budget?

A) It allocates expenses for achieving the sales target.
B) It tells whether arrangements need to be made for borrowing or owner investments.
C) It contains a forecast of the amounts and sources of sales income and the materials that will be needed to achieve the sales forecast.
D) It plans and controls revenue in order to obtain desired profits.

Question 5

The _____ shows how easily a company can pay its short-term obligations.

A) current ratio
B) equity ratio
C) working capital
D) net sales

Question 6

A(n) _____ budget forecasts sales and allocates expenses for achieving them.

A) capital
B) operating
C) revenue
D) cash flow

Question 7

_____ is the percentage of net profit the owners' equity earns before taxes.

A) Return on net assets
B) Surplus value
C) Return on equity
D) Profit margin

Question 8

Which of the following is a characteristic of an effective control system?

A) It should not be the responsibility of any one individual.
B) It should be outsourced.
C) It should indicate cause-and-effect relationship.
D) It should not be quantifiable.

Question 9

_____ refer to the acceptable levels to which employee achievement should conform.

A) Operating standards
B) Ethical standards
C) Performance standards
D) Employee standards

Question 10

_____ is the amount of current assets less current liabilities.

A) Return on investment
B) Working capital
C) Quick ratio
D) Return on net assets

Question 11

In _____ auditing, an outside certified public accountant (CPA) verifies the records and financial statements of a company-usually once a year.

A) financial
B) internal
C) employee-performance
D) personnel

Question 12

Which of the following budgets is planned first?

A) Production budget
B) Personnel budget
C) Revenue budget
D) Sales budget

Question 13

How is cash balance calculated at the end of a month?

A) By adding balance at beginning of month and total cash receipts and subtracting total cash payments
B) By adding balance at beginning of month and total cash payments and subtracting total cash receipts
C) By adding total cash receipts and total cash payments and subtracting balance at beginning of month
D) By adding balance at beginning of month, total cash receipts, and total cash payments

Question 14

Which of the following helps increase the assets or decrease the liabilities of a company?

A) Retained earnings
B) Long-term mortgages
C) Accrued payables
D) Inventory

Question 15

A(n) _____ budget plans expenditures for obtaining, expanding, and replacing physical facilities.

A) capital
B) operating
C) sales
D) cash flow

Question 16

Working capital indicates:

A) the ability a company has to fund innovation.
B) the ability a company has to multiply its profits within a short time.
C) the ability a company has to lower its variable costs of production.
D) the ability a company has to pay its current liabilities.

Question 17

Which of the following best describes a collection period ratio?

A) Long-term liability divided by working capital
B) Accounts receivable divided by average daily credit sales
C) Net income divided by average shareholders' equity
D) Net profit divided by net sales

Question 18

Which of the following is a characteristic of a financial audit?

A) It is conducted by an outside certified public accountant.
B) It is usually performed every month.
C) It is done for evaluating the effectiveness of controls.
D) It is used to study the basic operations of a company.

Question 19

A(n) _____ is a formalized examination and/or review of a company's financial records.

A) budget
B) audit
C) forecast
D) deed

Question 20

The _____ is the ratio of current assets, less inventory, to current liability.

A) current ratio
B) debt ratio
C) acid test ratio
D) cash ratio

Question 21

A cash flow budget is a forecast of expected cash receipts and expected cash payments.

Question 22

Which of the following is an example of a tax or fee paid to operate a business?

A) An excise tax
B) An incorporation tax
C) A use tax
D) A corporate franchise tax

Question 23

A negative cash balance requires an increase in payments and decrease in cash receipts.

Question 24

Which of the following is true of taxes on amounts withdrawn from a business?

A) Salaries and bonuses received from the business corporation are not considered as expenses to the business.
B) When one withdraws cash from a proprietorship or partnership, these sums are also taxable to that person as an individual.
C) When owners receive a dividend from a corporation, it is taxed only once.
D) The payment of pension plans is not deductible by the business.

Question 25

Which of the following is true of S corporation shareholders?

A) They are taxed at individual rates.
B) They are taxed at corporate rates.
C) They do not enjoy legal protection that comes with corporate status.
D) They have no restrictions on benefit plans.

Question 26

A(n) _____ is an additional tax on certain items imposed by the federal government.

A) excise tax
B) income tax
C) incorporation tax
D) value added tax

Question 27

The objective of the operating budget is to plan and control revenue and expenses to obtain desired profits.

Question 28

Performance standards tell employees in advance what level of performance is expected of them.

Question 29

Which of the following constitute taxable income?

A) Total revenues plus deductible expenses
B) Total revenues minus dividends paid
C) Total revenues plus dividends paid
D) Total revenues minus deductible expenses

Question 30

The _____ is a tax on the consumption or storage of goods within a taxing jurisdiction.

A) sales tax
B) use tax
C) excise tax
D) income tax

Question 31

A capital budget reflects a business's plans for obtaining, replacing, and expanding physical facilities.

Question 32

Planning is the process of assuring that organizational goals are achieved.

Question 33

A budget is a summary statement of a firm's current liabilities.

Question 34

If a firm is making profits, it is impossible for that firm to fail financially.

Question 35

Effective control systems should be generally acceptable to those involved with implementing them.

Question 36

Which of the following is a method of computing inventory that small firms tend to use to save taxes when prices rise?

A) First-in, first-out method
B) Last-in, first-out method
C) Average-cost method
D) Direct tax method

Question 37

The capital budget is the most basic plan to consider and must be prepared before all other budgets.

Question 38

Credit management involves:

A) forecasting sales and allocating expenses to achieve them.
B) developing new products to achieve a deeper market penetration.
C) deciding how customers will pay for purchases.
D) examining a company's financial records.

Question 39

Tax paid to the taxing authority by the person or business against which it is levied is known as _____.

A) direct tax
B) value added tax
C) indirect tax
D) sales tax

Question 40

A(n) _____ is a tax added to the gross amount of the sale for goods sold within the taxing jurisdiction.

A) use tax
B) excise tax
C) sales tax
D) income tax

Question 41

Information on actual operational performance comes through some form of feedback.

Question 42

Use taxes are usually imposed on the use, consumption, or storage of goods within a taxing jurisdiction.

Question 43

When a system of budgets is used for planning and control purposes, it becomes budgetary control.

Question 44

Uncollectable accounts receivable can be written off by small businesses to decrease business income tax liability.

Question 45

A company should be audited annually to ensure continued proper financial reporting.

Question 46

Taxes are not levied on the transfer of ownership of businesses.

Question 47

Owners of small businesses do not have to pay personal taxes on their salaries and other ownership-related income they withdraw from the business.

Question 48

Working capital can be calculated by subtracting current assets from total assets.

Question 49

The current ratio shows how easily a company can pay its current obligations.

Question 50

Internal audits furnish the owner(s), creditors, potential and current investors, and regulatory agencies with information on the company's financial status and operations.

Question 51

Return on equity is the ratio of net profit to owners' equity.

Question 52

Indirect taxes must either be added to the price of the firm's product or shifted backward to the persons who produced the product because they are part of the cost of doing business.

Question 53

If a company turns its inventory over too slowly, it is most likely to be keeping obsolete or deteriorating goods.

Question 54

Oral reports are the most prevalent type of control used in small firms and provide two-way communication.

Question 55

Extending credit decreases the potential for sales.

Question 56

Poor performance in a team can be effectively checked by increasing the number of employees.

Question 57

Most small companies like to keep a large amount of long-term debt because the risk is considerably low.

Question 58

A person's liability for sales taxes is always limited to the state to which he/she belongs.

Question 59

Excise tax refers to the tax levied on an individual's income.

Question 60

An audit of a company consists of a formalized, methodical study, examination, and review of its financial records.

Question 61

Discuss how taxes affect small businesses.

Question 62

Why is a system of controls necessary in small businesses?

Question 63

Describe the different types of budgets. Provide examples for each type.

Question 64

Describe the process of preparing an operating budget.

Question 65

What are the characteristics of effective control systems?

Question 66

Explain the budgetary control process. How are audits used to control the budget of a company? What are the benefits of auditing?

Question 67

Define feedback. What forms of feedback can a small business owner obtain to analyze the actual performance of its operations?

Question 68

What is credit management? What is its objective?

Question 69

What are the steps involved in the control process?

Question 70

List some of the factors contributing to a firm's poor performance.