Deck 7: Small Business Accounting

Question 1

Small business owners do not need to understand the basics of accounting

Answer 1

False

Question 2

One of the drawbacks of The Balanced Scorecard is that it excludes intangibles such as customer satisfaction and organizational learning

Answer 2

False

Question 3

Creativity is always bad for accounting

Answer 3

False

Question 4

The business entity concept suggests that the personal transactions must be listed as business transactions

Question 5

When an auditor issues a negative going concern opinion for a firm, it implies that the business will exist for an indefinite longer period of time

Question 6

The value of everything that the business owns is equal to the difference of what the business owes to others minus the claim the owner has on the business

Question 7

The cash flow statement summarizes the revenue and total expenses of the company over a specific period of time

Question 8

The cash flow statement is the primary source for information on the profitability of a firm

Question 9

Net effect of foreign exchange rates is important only for large corporations

Question 10

The two sides of the balance sheet must be equal to each other

Question 11

The balance sheet presents historical values that reflect the cost of the asset when it was acquired

Question 12

Retained earnings represent surplus cash available in the firm

Question 13

Total sales MINUS total expenses (after the expenses are paid) is the gross-profit of the firm

Question 14

The widely used financial ratio to measure the efficiency with which the firm is managed is the debt-to-asset ratio

Question 15

Operating income DIVIDED By interest expense is the debt-to-asset ratio

Question 16

The two important leverage ratios are debt-to-asset ratio and coverage ratio

Question 17

The inventory turnover ratio is an example of the leverage ratio of a firm

Question 18

A high ratio of fixed-assets turnover indicates that the firm is making optimal use of its assets

Question 19

A low ratio of total assets turnover indicates good marketing strategy and/or appropriate capital expenditures

Question 20

The current ratio is an example of the liquidity ratio of a firm

Question 21

The current ratio lower than 1.0 is considered good for firms

Question 22

Benchmarking analysis involves comparing firm's financials against the standard financials for the industry in which the firm operates

Question 23

_______ understands and predicts the results of management's decisions and actions

A) Tax accounting
B) Managerial accounting
C) Financial accounting
D) Accounting

Question 24

Tax accounting is used to:

A) Ensure that the business is always in compliance
B) Calculate how much money the firm pays in taxes
C) Both A and B are correct
D) Both A and B are incorrect

Question 25

Which of the following is NOT true about the balanced score card?

A) It is a strategic planning and management system
B) Includes organizational learning perspective
C) Excludes customer perspective
D) Includes both financial and non-financial performance metrics

Question 26

The ______suggests that the business is a distinct entity than the person who owns the business

A) Business entity concept
B) Going concern concept
C) Balanced Score card
D) Managerial accounting

Question 27

Which of the following implies that a business once started will remain in existence for the foreseeable future?

A) Business entity concept
B) Going concern concept
C) Balanced Score card
D) Managerial accounting

Question 28

The basic accounting equation is as follows:

A) Assets = Liabilities - Owner's Equity
B) Liabilities = Assets + Owner's Equity
C) Owner's Equity= Liabilities + Assets
D) Assets = Liabilities + Owner's Equity

Question 29

Which of the following is a benefit of selling on credits?

A) Delays the receipt of cash
B) Risk and fraud
C) Cash shortfall
D) Increases revenue

Question 30

Which of the following is NOT a financial statement

A) Profit & Loss statement
B) Balance sheet
C) Cash flow statement
D) Debt-to-asset ratio

Question 31

The income statement is also known as______

A) Profit-and-loss (P&L) statement
B) Cash flow statement
C) Balance sheet
D) Equity statement

Question 32

In the cash flow statement, the receipt of cash from customers is _______, but the receipts of funds associated with bank loans is ______

A) A financing activity, an operating activity
B) An operating activity, a financing activity
C) A financing activity, a foreign exchange rates
D) An investment activity, an operating activity

Question 33

In the cash flow statement, salary payment to employees is ______activity

A) An operating activity
B) A financing activity
C) A foreign exchange rates
D) An investment activity

Question 34

When a business has more cash going out of the business than coming in, it is called

A) Positive cash flow
B) Equity
C) Dividend
D) Negative cash flow

Question 35

While the _________presents the financial condition of the business over time, the ______ provides an instant snapshot of the business at a given moment in time

A) Income statement, balance sheet
B) Balance sheet, Income statement
C) Equity sheet, balance statement
D) Cash flow statement, equity sheet

Question 36

_______refers to the accumulated net income earned by the firm after paying out any dividends to the owners

A) Assets
B) Liability
C) Owner's equity
D) Retained earnings

Question 37

Retained earnings can be mathematically represented as:

A) Retained Earnings = Net Profit - Dividends
B) Retained Earnings = Net Profit
C) Retained Earnings = Net Profit + Dividends
D) Retained Earnings = Dividends

Question 38

________measure the ability of a company to derive profits from sales and to transform its assets into profits

A) Leverage ratios
B) Profitability ratios
C) Liquidity ratios
D) Trend analysis

Question 39

Total Sales MINUS Cost of Goods sold is the :

A) Equity
B) Liabilities
C) Quick ratio
D) Gross profit

Question 40

The firm's gross profit margin is :

A) 20%
B) 42.22%
C) 30.55%
D) 15.23%

Question 41

The firm's net profit margin (NPM) is :

A) 42.22%
B) 25.38%
C) 36.11%
D) 15.13%

Question 42

The firm's return on assets (ROA) is :

A) 30.1%
B) 25.38%
C) 36.11%
D) 15.13%

Question 43

The firm's return on equity (ROE) is :

A) 56.10%
B) 45.12%
C) 33.33%
D) 61.90%

Question 44

The firm's debt-to-asset ratio is :

A) 0.20
B) 0.10
C) 0.32
D) 0.50

Question 45

The firm's current ratio is :

A) 0.2
B) 3.5
C) 0.2
D) 1.27

Question 46

What is the firm's quick ratio?

A) 1.5
B) 2.3
C) 0.5
D) 2.33

Question 47

_______involves comparing the firm's present performance with its past performance

A) Benchmarking analysis
B) Trend analysis
C) Industry-average analysis
D) Financial ratios