Deck 14: Basic Financial Planning

Question 1

_______ refer(s) to the financial obligations of a business created by borrowing.

A) Net worth
B) Cash flow
C) Equities
D) Liabilities

Answer 1

D

Question 2

Gemini Inc. earned a net income of $250,000 in the year 2000. If its expenses for that year amounted to $50,000, what was the revenue that Gemini Inc. earned in the year 2000?

A) $300,000
B) $250,000
C) $350,000
D) $200,000

Answer 2

A

Question 3

What will the net income of a company be if its revenue is $600,000 and expenses $200,000?

A) $800,000
B) $200,000
C) $400,000
D) $1,200,000

Answer 3

C

Question 4

A(n) _____ periodically shows revenues, expenses, and profits from a firm's operations.

A) balance sheet
B) statement of retained earnings
C) income statement
D) cash flow statement

Question 5

Which of the following is an example of a fixed asset?

A) Cash
B) Prepaid expense
C) Equipment
D) Inventory

Question 6

_______ refer(s) to obligations to pay, resulting from purchasing goods or services.

A) Mortgage payable
B) Surplus value
C) Accounts payable
D) Owner's equities

Question 7

_____ refer(s) to current assets resulting from selling a product on credit.

A) Accounts receivable
B) Accounts payable
C) Liabilities
D) Owners' equity

Question 8

_____ show(s) a firm's financial position and reflect(s) any changes in that position.

A) Benchmarks
B) Cost of goods sold
C) Profit goals
D) Accounting records

Question 9

Land, cash, accounts receivable, inventory, equipment, building and other things of value that a company owns are its _____.

A) profits
B) assets
C) revenues
D) expenses

Question 10

Acute Business Corp., a small business firm, has $500,000 in assets and $300,000 in liabilities. What is the value of the owners' equity?

A) $1,500,000
B) $200,000
C) $175,000
D) $800,000

Question 11

A _____ is a statement of a firm's assets, liabilities, and owners' equity at a given time.

A) balance sheet
B) benchmark
C) profit goal
D) sales forecast

Question 12

_____ describes the relative proportions of a firm's assets, liabilities, and owners' equity.

A) Surplus value
B) Financial structure
C) Profit
D) Accounts receivable

Question 13

Which of the following is true of benchmarking?

A) It involves setting up standards and then measuring performance against them.
B) It is a series of prescribed steps to be taken to ensure that a profit will be made.
C) It sets cost targets for all phases of design, development, and production of a product for each accounting period.
D) It describes the relative proportions of a firm's assets, liabilities, and owners' equity.

Question 14

Which of the following is an example of current asset?

A) Motor vehicles
B) Furniture
C) Inventory
D) Office equipment

Question 15

Current assets are expected to _____.

A) turn over
B) remain unchanged with respect to its form
C) deplete rapidly within a year
D) be primarily intangible

Question 16

Which of the following is true of profit planning?

A) Profit planning completely eliminates the risk of failure of businesses.
B) Typically, determining the volume of sales revenue is not required for profit planning.
C) Profit planning must precede other planning activities.
D) The profit goal need not be a specific target value.

Question 17

In the context of small businesses, _____ is a series of prescribed steps to be taken to ensure that a profit will be made.

A) budgeting
B) profit planning
C) forecasting
D) profit monitoring

Question 18

Which of the following is an example of current liability?

A) Accounts payable
B) Prepaid expenses
C) Inventory
D) Mortgage payable

Question 19

Which of the following is an example of long-term liability?

A) Accounts payable
B) Accounts receivable
C) Accrued payable
D) Mortgage payable

Question 20

______ refers to the owners' net worth in the business after liabilities are subtracted from assets.

A) Breakeven expense
B) Profit
C) Owners' equity
D) Revenue

Question 21

If your funds are invested in a fixed asset, they are not available for paying bills.

Question 22

Profits are not necessarily in the form of cash.

Question 23

Profit planning must be initiated only after all other planning activities have been completed.

Question 24

A well-managed small business is most likely to:

A) place low importance on the balance sheet.
B) emphasize rapid growth instead of stability.
C) emphasize long-range planning.
D) be less liquid than a badly managed company.

Question 25

_____ is the difference between revenue earned and expenses incurred.

A) Profit
B) Liability
C) Gap ratio
D) Depreciation

Question 26

Which of the following is true of a sales forecast?

A) It is the value received by a firm in return for a good or service.
B) It is an estimate of the amount a firm expects to sell during a given period in the future.
C) It represents the difference between revenue earned and expenses incurred.
D) It is an estimate of the owners' share of the business, after liabilities are subtracted from assets.

Question 27

Since the financial position of a small business is constantly changing, these changes need not be recorded for further analysis.

Question 28

In the context of small businesses, _____ is the first step in profit planning.

A) establishing a profit goal
B) estimating the volume of sales revenue
C) estimating the amount of expenses
D) preparing a balance sheet

Question 29

Cost of goods sold is:

A) the targeted cost for all phases of design, development, and production of a product for each accounting period.
B) the percent of profit over expenditures.
C) the total cost in terms of raw materials, labor, and overhead of the business that can be allocated to production.
D) the difference between revenue earned and expenses incurred.

Question 30

The type of business one is entering is of little significance in determining the amount of startup funds one will require.

Question 31

Cirrus Inc., a firm manufacturing automobile parts, is currently trying to reduce costs per unit in a drive to improve profits. It uses the concept of _____ that sets cost targets in advance and requires each cost center to set specific cost reduction plans for each accounting period.

A) activity-based costing
B) contract costing
C) batch costing
D) kaizen costing

Question 32

For small business owners, a lack of accurate cost information can foster the illusion of making a greater profit than is really earned.

Question 33

Which of the following refers to a profit planning step in the context of small businesses?

A) Listing strategies for rapid growth
B) Comparing the estimated profit with the profit goal
C) Listing strategies for diversification
D) Analyzing the diversification strategies of competitors

Question 34

The financial structure of a firm remains unchanged as business activities occur.

Question 35

According to the most basic accounting truth, the total liabilities plus owners' equity always exceeds the total assets of the firm.

Question 36

In the context of small businesses, which of the following is an alternative for improving profits?

A) Increasing productivity of people and machines
B) Selling products on the basis of price alone
C) Buying all components of the product from the outside
D) Removing a summer product from a winter line of products

Question 37

Profit planning is simple for new entrepreneurs who have given up well-paying jobs in order to go out on their own.

Question 38

Which of the following is true of the breakeven point?

A) It sets in advance cost targets in all aspects of product design and production.
B) It is the volume of sales where there is neither profit nor loss.
C) It is the amount of revenue expected from sales for a given period in the future.
D) It is the specific amount of profit one expects to achieve.

Question 39

____ is the specific amount of profit one expects to achieve.

A) The breakeven point
B) A sales forecast
C) A profit goal
D) A benchmark

Question 40

To make a profit, your prices must cover only direct costs and exclude all indirect costs.

Question 41

Small business owners receive income from profits in the form of an increase in their share of the business through an increase in retained earnings.

Question 42

The profit margin indicates the relationship between revenues and expenses.

Question 43

Small business owners need not absorb the losses of the firm.

Question 44

Maintaining a high level of accounts payable requires a business to have a high level of current assets.

Question 45

Kaizen costing refers to a cost reduction method aimed at improving profits.

Question 46

Long-range planning is important for a well-managed small business firm.

Question 47

A badly managed small business is more liquid than a well-managed company.

Question 48

Owners' equity is the owners' share of the business after financial obligations are subtracted from the things that the business owns.

Question 49

At regular intervals, a balance sheet is prepared to show the assets, liabilities, and owners' equity of the small business.

Question 50

In a well-managed small business, the balance sheet is not as important to the owner as the income statement.

Question 51

Losses increase owners' equity.

Question 52

Holding too much cash reduces a small business owner's income because it produces no revenue.

Question 53

Borrowing from creditors is divided into current and long-term liabilities.

Question 54

Accounts payable are usually due within a few years.

Question 55

The income statement reflects both the revenue and the expenses of a firm.

Question 56

Selling on credit coupled with a careful selection of customers can help small business owners maintain a higher level of sales.

Question 57

If a small business firm has $46,000 in revenue and $24,000 in expenses, its net profit is $70,000.

Question 58

In the context of profit planning for small businesses, the more uncertain the future, the greater the need for planning.

Question 59

Rapid growth, instead of stability, is emphasized in a well-managed small business firm.

Question 60

In the context of small businesses, accounts payable result from giving credit to customers at a low interest rate.

Question 61

What is the importance of accounting for small businesses?

Question 62

Write a short note on owners' equity.

Question 63

How can a small business change its planned sales income to improve profits?

Question 64

What are the alternatives that a small business owner can consider in order to increase profits?

Question 65

How can a small business decrease planned expenses to improve profits?

Question 66

Differentiate between revenue and expenses.

Question 67

In the context of small businesses, list the steps in profit planning for small businesses.

Question 68

List some of the characteristics of a well-managed small business.

Question 69

In the context of small businesses, what is the difference between accounts receivable and accounts payable?

Question 70

Explain how a sales forecast is used to determine the sales volume for a small business.