Deck 12: Small Business Accounting: Projecting and Evaluating Performance

Question 1

Formal summaries of the content of an accounting system's records of transactions are called financial instruments.

Answer 1

False

Question 2

The usefulness of the income statement for managing a small business is related to the amount of detail available in the statement.

Answer 2

True

Question 3

The primary reason to acquire and use a computerized accounting system in your business is to ensure the accuracy of your accounting information.

Answer 3

True

Question 4

Financial flexibility of a business is a matter of judgment,whereas financial strength is an objective assessment.

Question 5

Variable costs decrease if output increases.

Question 6

Expenses are the value given up to obtain something that the owner wants.

Question 7

By limiting the information about financial concerns,the complexity of managerial accounting has been increased.

Question 8

The first step in budgeting is to make a forecast of your future sales.

Question 9

One reason why accounting is important to a small business is that it shows how much your business is worth.

Question 10

Strategic planning is the process through which strategy is mapped into a series of tactical and operational actions.

Question 11

Expendables are necessarily fixed costs.

Question 12

To ensure your accounting information is accurate,reliable,and useful,the accounting system you choose should easily and efficiently maintain an internal "audit trail".

Question 13

The accounting equation is simply stated as Assets = Liabilities - Owners' Equity.

Question 14

One of the difficulties in understanding and interpreting the income statements is the dispute over when one should recognize revenues.

Question 15

Financial accounting is forward-looking and attempts to predict the results of management decisions.

Question 16

Liquidity is a measure of the ability of a business to meet both short-term and long-term obligations.

Question 17

Cash flow statements can be either direct statements or indirect statements.

Question 18

The cost of goods sold budget shows the predicted cost of product actually sold during the accounting period.

Question 19

Variance analysis is the process of determining the effect of price and quantity changes on revenues and expenses.

Question 20

Statement of cash flows is also referred to as the statement of financial position.

Question 21

Which of the following is a feature that a chosen accounting system should have?

A) It should facilitate the development of a cash budget.
B) It should limit the production of custom reports that meet management needs.
C) It should show the financial position of the business only after elaborate processing.
D) It should have a limited context-independent help function.

Question 22

Which of the following accounting functions focuses the most on automatically calculating and accumulating depreciation?

A) Credit card sales
B) Fixed asset accounting
C) Payroll records
D) Accounts receivable records

Question 23

Larry owns a successful business called Super Car-Hire.He plans to sell it to Bob.Bob assumes that he can keep up the high revenues if he can plan and execute the mission of the business well.Which of the following basic accounting concepts is reflected in Bob's assumption?

A) The business entity idea
B) The going concern expectation
C) The accounting equation
D) The revenue and expense premise

Question 24

Financial accounting is primarily intended for:

A) bankers,investors,and regulators.
B) calculating and reporting taxes.
C) predicting the results of management decisions.
D) avoiding penalties for noncompliance.

Question 25

Which of the following accounting functions ensures that the employment taxes are kept current?

A) Leasehold records
B) Investments records
C) Payroll records
D) Accounts receivable records

Question 26

The difference between assets and liabilities of a business is called its:

A) net income.
B) owners' equity.
C) cost of capital.
D) current ratio.

Question 27

Which of the following statements is not true of computerized accounting systems?

A) The market for computerized accounting programs for small businesses is in a state of turmoil.
B) All systems have a cost attached with the cheapest system being about $10 per month.
C) Out of 75 different computerized accounting programs,4 programs account for the majority of small business use.
D) All of the systems will produce financial reports that meet legal requirements for content and format.

Question 28

The "going concern" concept states that:

A) a business has an existence that is separate from its owner.
B) accounting information must be useful to the owners and managers of businesses.
C) the premise of revenue and expense are a part of business.
D) a successful business will stay in business.

Question 29

The "business entity" concept of accounting indicates that:

A) a successful business will stay in business.
B) assets = liabilities + owners' equity.
C) a business has an existence that is separate from its owner.
D) accounting information must be useful to the owners and managers of businesses.

Question 30

_____ is an accounting approach based on specific accounting requirements set by governmental taxing agencies.

A) Tax accounting
B) Managerial accounting
C) Benchmarking
D) Forensic accounting

Question 31

Which of the following is true of accounting equation?

A) It is used to place records into understandable categories that are useful for managing a business.
B) It assumes that a successful business will stay in business and this enables long-range planning and strategy.
C) It underlies the legal forms of establishing businesses,such as corporations,limited partnerships,and limited liability companies.
D) It ensures that accounting information is useful to the firm's stakeholders.

Question 32

Which of the following is true of managerial accounting?

A) It is used to produce tax returns and schedules.
B) It is a rule-based system intended primarily for absentee owners.
C) It is forward-looking in nature.
D) It is primarily for bankers,investors,and regulators.

Question 33

Regular and systematic reduction in income that transfers asset value to expense over time is called _____.

A) appreciation
B) contribution margin
C) depreciation
D) benchmarking

Question 34

Juan has an accounting philosophy according to which he keeps the loans borrowed from the business separate from the loans he takes from banks for his own purposes.Which of the following basic accounting concepts is reflected in Juan's accounting philosophy?

A) The business entity idea
B) The going concern expectation
C) The accounting equation
D) The revenue and expense premise

Question 35

Which of the following does the accounting equation state?

A) Revenue = Expense
B) Assets = Liabilities + Owners' Equity
C) Liabilities = Owners' Equity
D) Net income = Long-term Liabilities

Question 36

Regardless of your business's size,the one essential element of an accounting system is ________ that is accurate,easy to use,and tracks all checks written and all deposits made.

A) tax accounting
B) financial accounting
C) managerial accounting
D) cash accounting

Question 37

Legal obligations to give up things of value in the future are known as _____.

A) assets
B) borrowings
C) liabilities
D) owners' equity

Question 38

_____ is a formal,rule-based set of accounting principles and procedures intended for use by outside owners,investors,banks,and regulators.

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

Question 39

An accounting method that is specifically intended to be used for planning,directing,and controlling a business is called:

A) tax accounting.
B) managerial accounting.
C) benchmarking.
D) forensic accounting.

Question 40

_______ are the accounts of assets,liabilities,and owners' equity,excluding accounts for revenues and expenses.

A) Liquid accounts
B) Stable accounts
C) Permanent accounts
D) Priority accounts

Question 41

Which of the following statements is true when setting up your accounting system?

A) Accounting needs are the same regardless of industry.
B) Even the smallest businesses need formal record keeping.
C) The actual task of setting up an accounting system is quite easy if you understand accounting a bit.
D) It is illegal to outsource your accounting system.

Question 42

Which of the following accounting concepts has roots in the Mesopotamians who lived and kept records 5,000 years ago?

A) The business entity concept.
B) The accounting equation.
C) The going concern concept.
D) CVP analysis.

Question 43

Which of the following ratios is used to estimate the liquidity of a business?

A) Inventory turnover ratio
B) Total assets to total liabilities ratio
C) Current ratio
D) Quick ratio

Question 44

Which of the following concepts assume that information flows from the income statement through the statement of retained earnings,the statement of owners' equity to the balance sheet?

A) Articulate concept
B) Going concern concept
C) Opportunity cost concept
D) Leveraging concept

Question 45

Which of the following accounting functions has been accurately described?

A) Investments records help produce accurate billing of customers,and thus help to maintain good customer relations.
B) Payroll records track if your business keeps surplus cash invested in securities.
C) Accounts payable records help to make timely payments in order to capture prompt pay discounts and to maintain a good credit rating for the business.
D) Credit card sales function enables that payroll and employment taxes are kept current.

Question 46

_____ is a measure of how quickly a company can raise money through internal sources by converting assets to cash.

A) Absorbability
B) Equitability
C) Nominal value
D) Liquidity

Question 47

Lenders use operating income as:

A) a measure of how well management achieved sales.
B) an indication of future sales.
C) a measure of how much debt a business can support.
D) an indication of a business's ability to control costs.

Question 48

Which of the following is a difficulty that arises in understanding and interpreting the income statements?

A) There is difficulty deciding whether to report the revenues.
B) There is difficulty deciding what should be considered as expenses.
C) There are disputes over when to recognize revenues.
D) There are disputes over the preferred tax rate to incorporate.

Question 49

Which of the following statements concerning the income statement is true?

A) The income statement is only used internally by the owners.
B) The characteristics that sometimes make the income statement hard to understand also provide temptation to "fudge" the numbers.
C) The income statement is also called the statement of financial position.
D) Values listed on the income statement are historical values.

Question 50

The rule of thumb for evaluating current ratio is that the minimum acceptable ratio is:

A) 3.0.
B) 1.0.
C) 2.0.
D) 4.0.

Question 51

_____ is the most used item on the income statement.

A) Net income
B) Cost of sale
C) Revenue
D) Operating income

Question 52

Most investors and all banks expect to be provided financial statements that meet the rules of _______.

A) generally accepted accounting principles or GAAP
B) managerial accounting principles
C) the business entity concept
D) financial flexibility

Question 53

In the context of accounting functions,which of the following is true of accounts receivable?

A) It tracks what one owes and helps to make timely payments.
B) It is independent of the extension of credit.
C) It records all checks written and payments made.
D) It records provision of credit to customers.

Question 54

Formal summaries of the content of an accounting system's records of transactions are called _____.

A) financial securities
B) financial instruments
C) financial statements
D) financial derivatives

Question 55

Which of the following is true of financial statements?

A) The customization of financial reports is illegal in all states.
B) The overall content and form of financial statements have been made standard by long usage.
C) Bankers and investors are typically new and unacquainted with standard financial statements.
D) The differences unique to each industry cannot be represented accurately in financial statements.

Question 56

The sum of all profits and losses,less all dividends paid since the beginning of the business is called:

A) liabilities.
B) retained earnings.
C) net income.
D) tax liability.

Question 57

_____ is an indicator of the business's ability to manage cash flows so that the company has the fiscal ability to respond appropriately if an unexpected opportunity or problem arises.

A) Liquidity
B) Financial flexibility
C) Absorbability
D) Equitability

Question 58

Which of the following is a statement of what a business owns,what it owes to others,and how much value the owners have invested in it?

A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of retained earnings

Question 59

Which of the following statements lists revenues and expenses and shows the amount of profit a business makes for a specified period of time?

A) Balance sheet
B) Statement of retained earnings
C) Income statement
D) Cash flow statement

Question 60

_____ refers to the ability of a business to survive adverse financial events.

A) Liquidity
B) Financial flexibility
C) Financial strength
D) Profitability

Question 61

A comprehensive budget is also referred to as the:

A) master budget.
B) sales budget.
C) purchases budget.
D) universal budget.

Question 62

_____ is the idea that it is cheaper (per item)to make many of an item than few.

A) Inventory turnover
B) Economy of scale
C) Breakeven point
D) Historical value

Question 63

A financial plan for the future based on a single level of operations is called a(n):

A) balance sheet.
B) budget.
C) income statement.
D) statement of cash flows.

Question 64

________ information and reports are used when planning,organizing,staffing,directing,and controlling.

A) Variance analysis
B) Financial accounting
C) Cost-volume-profit analysis
D) Managerial accounting

Question 65

_____ activities include the acquisition and disposal of property,plant,equipment,and investment securities of other firms.

A) Operating
B) Investing
C) Financing
D) Marketing

Question 66

Aaron,a businessman,has a method of keeping track of accounts receivable by sorting them into groups of those that are 30,60,90,and over 90 days past due.Which of the following actions will the collection agency which buys the delinquent account from Aaron do?

A) Collect the entire amount owed and return it to Aaron.
B) Sell it back to Aaron after collecting the entire amount owed.
C) Collect the entire amount owed and keep all the money it obtains.
D) Take mild actions and collect a token amount.

Question 67

Which of the following is not one of the primary criteria for a small business's record keeping system?

A) The ability to outsource the task.
B) The timeliness of reports.
C) The security of data.
D) Understandability to the manager of the business.

Question 68

Aaron,a businessman,has a method of keeping track of accounts receivable by sorting them into groups of those that are 30,60,90,and over 90 days past due.Aaron's key in controlling receivables is to have them _____,by sorting them into groups.

A) collected
B) aged
C) merged
D) written-off

Question 69

Which among the following is an example of a variable cost?

A) Lighting
B) Security
C) Shipping
D) Cleaning

Question 70

Which of the following reconciles the net increase or decrease with the beginning cash balance and the ending cash balance?

A) Net effect of foreign exchange rates
B) Noncash investing and financing
C) Net change in cash balance
D) Noncash operating activities

Question 71

The ______ is also called the Statement of Financial Position.

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

Question 72

Which of the following statements is true regarding the balance sheet?

A) It is rarely useful to the owners and managers of businesses.
B) It contains an exhaustive list of a business's assets and liabilities.
C) It always contains exact amounts.
D) it's values are considered as historical values.

Question 73

Identify the managerial accounting technique which looks at the fixed and variable costs of a business to arrive at a number of unit sales to maximize gains.

A) Cost-volume-profit analysis
B) Marginal revenue costs analysis
C) Break even analysis
D) Cash flow analysis

Question 74

Which of the following is more indicative of a business's financial strength?

A) Short-term investments
B) Prepaid expenses
C) Accounts payable
D) Inventories

Question 75

Which of the following statements is true about fixed costs?

A) They can be assigned to a specific item sold or manufactured.
B) They are unaffected by changes in output.
C) They increase as the number of units produced increases.
D) They include expendables.

Question 76

The first step in preparing a master budget is to prepare a _____ budget.

A) production
B) direct materials
C) sales
D) direct labor

Question 77

Eddie,the owner of a fast-food joint,finds that he spends far lesser when he bakes breads in dozens than when he bakes two or three loafs at a time.This idea of Eddie's is similar to the concept of:

A) break-even point.
B) economy of scale.
C) economy of scope.
D) monopoly.

Question 78

Financial statements containing estimated or hypothetical information are called:

A) pro forma statements.
B) assumed income statements.
C) tentative balance sheets.
D) annual report statements.

Question 79

Sharon handles a home-made gifts business which has gained popularity in her town.After Sharon moved into a big city,however,her marketing efforts could barely help her get just enough revenue to meet her costs.This means Sharon's business is at:

A) economy of scale.
B) monopoly.
C) break-even point.
D) bankruptcy.

Question 80

Activities involved in producing and selling goods and services are called _____ activities.

A) operating
B) investing
C) financing
D) marketing