Deck 13: Small Business Accounting: Projecting and Evaluating Performance

Question 1

It is common to create the budgeted income statement in only a fiscal period format.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

Payroll records help ensure that employment taxes are kept current.

Question 6

The final output of a computer system is a set of financial statements and reports.

Question 7

Outsourcing requires that a decision be made whether the business should make a component of its own product,or purchase the component from another business.

Question 8

There are two formats for income statements: revenue-only format and,revenue and expense format.

Question 9

Variable costs decrease if output increases.

Question 10

Expenses are the value given up to obtain something that you want.

Question 11

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

Question 12

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

Question 13

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

Question 14

Expendables are often fixed costs.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

One difficulty in understanding and interpreting the income statements is the dispute over when to recognize revenues.

Question 21

Which of the following accounting concepts makes it possible to separate business transactions from personal transactions?

A)Business entity
B)Costs and expenses
C)Going concern
D)Accounting equation

Question 22

Which of these represent the accounting equation?

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

Question 23

A(n)______ is something you owe someone else.

A)asset
B)liability
C)owners' equity
D)cash flow

Question 24

Which of the following accounting functions allows a business to keep track of what it owes,make timely payments in order to capture prompt pay discounts,and maintain a good credit rating?

A)Credit card sales
B)Accounts receivable records
C)Accounts payable records
D)Payroll records

Question 25

Which of these is NOT identified as a most basic accounting concept?

A)Business entity
B)Costs and expenses
C)Going concern
D)Buy and sell

Question 26

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

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

Question 27

A(n)_____ is simply a record of transactions that are similar in nature.

A)report
B)description
C)account
D)narrative

Question 28

The financial state of having more debt than assets means,you are

A)rich.
B)profitable.
C)bankrupt.
D)solvent.

Question 29

Accurate and timely _____ are essential for making decisions concerning the extension of credit.They also help produce accurate billing of customers,and thus help to maintain good customer relations.

A)payroll records
B)leasehold records
C)accounts payable records
D)accounts receivable records

Question 30

Which of these is used by managers for planning and controlling?

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

Question 31

An accounting system should accomplish all of the following tasks EXCEPT

A)provide a simple,easy-to-understand user interface.
B)have an exhaustive context-sensitive help function.
C)enforce security measures to reduce the opportunity for employee misuse or fraud.
D)avoid the export of financial data.

Question 32

The most commonly used small business accounting systems include all of these EXCEPT

A)Quickbooks.
B)Peachtree.
C)Great Plains.
D)TaxCut.

Question 33

Which of these refers to the concept that a business is expected to continue in existence for the foreseeable future?

A)Business entity
B)Costs and expenses
C)Going concern
D)Buy and sell

Question 34

A regular and systematic reduction in income that transfers asset value to expense over time is called

A)bankruptcy.
B)depreciation.
C)liquidity.
D)opportunity cost.

Question 35

Going concern is the

A)legal obligation to give up things of value in the future.
B)accounting concept that implies that a business may continue in business even if it is sold to other owners.
C)difference between assets and liabilities of a business.
D)value given up to obtain something that you want.

Question 36

Fixed asset accounting

A)ensures that payroll and employment taxes are kept current.
B)automatically calculates and accumulates depreciation.
C)records if your business keeps surplus cash invested in securities.
D)records if your business has made improvements to leased property or equipment.

Question 37

"_____" means that the value of the item can be realized,or must be paid as cash within one year,while "_____" means that the asset will still be valuable more than one year in the future,or that the business may take longer than one year to pay the amount owed.

A)Dated,current
B)Current,long-term
C)Current,dated
D)Long-term,current

Question 38

What do you call a decrease in owners' equity caused by consuming your product or service?

A)Opportunity cost
B)Cost
C)Owners' equity
D)Expense

Question 39

Accounting is important to a small business for all of these reasons EXCEPT

A)banks,creditors,development agencies,and investors require it.
B)it provides easy-to-understand plans for business operations.
C)it makes it difficult for others to acquire your business.
D)it proves what your business did financially.

Question 40

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

A)operating activities.
B)investing activities.
C)financial statements.
D)variance analyses.

Question 41

Lenders use operating income specifically

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

Question 42

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

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

Question 43

Which of these 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 44

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

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

Question 45

Which statement 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 46

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

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

Question 47

What do you call the acquisition cost of the asset that is listed in a balance sheet?

A)Historical value
B)Financial strength
C)Liquidity
D)Depreciation

Question 48

There are two difficulties that arise in understanding and interpreting the income statements.One is the disagreements about what exactly should be reported as revenues and the other is

A)whether to report the revenues.
B)what should be considered as expenses.
C)disputes over when to recognize revenues.
D)the preferable tax rate to incorporate.

Question 49

Which of these is NOT a common financial statement?

A)Statement of retained earnings
B)Statement of depreciation
C)Cash flow statement
D)Balance Sheet

Question 50

The _____ is also called the Statement of Financial Position.

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

Question 51

Which of these refers to the concept that information flows from the income statement through the statement of retained earnings,and of owners' equity to the balance sheet?

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

Question 52

The value of current assets divided by current liabilities is called

A)inventory turnover ratio.
B)current ratio.
C)total asset to total liabilities ratio.
D)quick ratio.

Question 53

_____ is the most used item on the income statement.

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

Question 54

There are two formats for income statements,a(n)

A)single-step and multiple-step format.
B)revenue-only and revenue and expense format.
C)owners' equity and balance sheet format.
D)cash flow and retained earnings format.

Question 55

Which income statement format is preferred by most owners and managers of small businesses?

A)Single-step
B)Multiple-step
C)Revenue-only
D)Retained earnings

Question 56

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

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

Question 57

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

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

Question 58

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 59

Which of these refers to the ability of a business to survive adverse financial events?

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

Question 60

The information in the balance sheet is used to determine all of these EXCEPT

A)liquidity.
B)financial flexibility.
C)profitability.
D)financial strength.

Question 61

Activities through which cash is obtained from and paid to lenders,owners,and investors are called _____ activities.

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

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

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 profits.

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

Question 64

Breakeven point

A)is the point at which total costs equal gross revenue.
B)is the point at which fixed costs equal variable costs.
C)is the point at which total costs equal profit.
D)is the point at which variable costs equal gross revenue.

Question 65

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 66

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

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

Question 67

The quantity of goods sold times the price expected to be paid for each product is the calculation used for the

A)overhead budget.
B)sales budget.
C)purchases budget.
D)cost of goods sold budget.

Question 68

_____ 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 69

The _____ budget shows the number of units that are expected to be acquired during the budget period.

A)cash receipts
B)labor
C)sales
D)purchases

Question 70

A comprehensive budget is otherwise known as the

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

Question 71

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

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

Question 72

_____ is an accounting method which assigns costs based on the different types of work a business does in order to sell a particular product or service.

A)Differential revenues and expenses
B)Net present value analysis
C)Cost-volume-profit analysis
D)Activity-based cost estimates

Question 73

The key in controlling receivables is to have them _____,by sorting them into groups of those that are 30,60,90,and over 90 days past due.

A)recorded
B)cataloged
C)aged
D)classified

Question 74

Estimated or hypothetical financial statements are called

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

Question 75

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

A)It has a limited impact on financial ratios.
B)It contains an exhaustive list of a business's assets and liabilities.
C)The balance sheet contains exact figures.
D)All values listed in a balance sheet are historical values.

Question 76

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)Fixed cost per item increases as the number of units produced increases.
D)They include expendables.

Question 77

The primary criteria for a small business's record keeping system are all of these EXCEPT

A)simplicity of use.
B)accuracy of detail.
C)timeliness of reports.
D)economical in cost.

Question 78

Which among the following is a variable cost?

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

Question 79

Which of the following simply 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 80

What becomes a standard against which performance can be measured,once it has been established?

A)Budget
B)Liquidity
C)Balance sheet
D)Statement of cash flows