Question 1

In MOST companies, accounting is the only responsibility of the finance department.

Accepted Answer

While accounting is an important function of the finance department, it is not the only responsibility. Other responsibilities may include financial planning, budgeting, analysis, and risk management, among others.

Question 2

Robin Airline's long-term leases of its jets are examples of current liabilities.

Accepted Answer

Long-term leases of jets are not considered current liabilities, but rather non-current liabilities. Current liabilities are obligations that are expected to be paid within one year.

Question 3

Leverage is the amount of debt used to finance a firm's assets.

Accepted Answer

Leverage refers to the use of borrowed funds to increase the potential return on investment, but it also increases the risk of loss. In other words, leverage is the amount of debt used to finance a firm's assets.

Question 4

Because BackBeatMusic.com's current assets are less than its current liabilities, the company has positive working capital.

Accepted Answer

Positive working capital occurs when current assets exceed current liabilities. Since BackBeatMusic.com's current assets are less than its current liabilities, it does not have positive working capital.

Question 5

Government and not-for-profit accounting refers to the accounting required for organizations that are not focused on generating a profit, such as legislative bodies and charities.

Accepted Answer

Government and not-for-profit accounting is specific to organizations that are not focused on earning a profit. Examples include government entities, charities, and educational institutions.

Question 6

Financial statements serve as a basis for management to develop expectations of where the company will be in future periods.

Accepted Answer

Financial statements contain information about a company's financial performance and position, which can help management develop expectations for future periods. For example, if a company's income statement shows strong revenue growth and increasing profitability, management may expect similar growth and profitability in future periods. Similarly, if a company's balance sheet shows strong liquidity and low debt levels, management may expect the company to have flexibility to pursue growth opportunities or weather downturns in the future.

Question 7

Financial management involves setting up and monitoring controls to make certain the plans and budgets are monitored sufficiently so that the business can reach its financial goals.

Accepted Answer

Financial management does indeed involve setting up and monitoring controls to ensure that the business is on track to achieve its financial objectives. Regular monitoring and review of budgets and financial reports can help identify any discrepancies or issues that need to be addressed in order to keep the business financially healthy.

Question 8

The Sarbanes-Oxley Act established the Public Company Accounting Oversight Board, which is responsible for overseeing financial audits of public companies.

Accepted Answer

This statement is true. The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight Board (PCAOB) to oversee financial audits of public companies and to set audit standards.

Question 9

A commercial finance company is an alternative to a bank as a source of short-term financing.

Accepted Answer

A commercial finance company provides short-term financing to businesses as an alternative to traditional bank loans. They specialize in factoring, asset-based lending, and other forms of financing that may be more flexible than traditional bank financing.

Question 10

Financial statements represent what has happened in the past.

Accepted Answer

Financial statements typically reflect financial information for a specific period of time in the past, such as a month, quarter, or year. They provide a snapshot of a company's financial performance during that period.

Question 11

Commercial banks are financial institutions that raise funds from businesses and individuals in the form of checking and savings accounts and use those funds to make loans to businesses and individuals.

Accepted Answer

This is a correct definition of commercial banks.

Question 12

Secured bonds are issued with no collateral.

Accepted Answer

Secured bonds are backed by collateral, while unsecured bonds (also known as debentures) are issued without collateral.

Question 13

Depreciation helps keep the accounting equation in balance by matching the expense of a liability with the revenue that liability is expected to generate.

Accepted Answer

Depreciation is the process of allocating the cost of a tangible asset over its useful life and is not directly related to liabilities or revenue generation. It helps in matching the cost of an asset with the revenue it helps to generate over time, but it does not involve liabilities.

Question 14

Accounts receivable is an example of a fixed asset.

Accepted Answer

Accounts receivable are not a fixed asset, but a current asset. Fixed assets are long-term assets such as property, plant, and equipment.

Question 15

To evaluate the best financing option, a financial manager must first match the length of the financing to the length of the need.

Accepted Answer

This is because if the financing is not matched to the length of the need, it could lead to higher costs and potential financial strain for the company. For example, taking out a short-term loan to finance a long-term project could lead to higher interest rates and the need for refinancing, which can be costly. Therefore, it is important for the financial manager to consider the length of the financing and how it aligns with the company's needs before making a decision.

Question 16

The longest period covered in financial accounting reports is three months.

Accepted Answer

The longest period covered in financial accounting reports is one year, also known as the fiscal year. However, companies may choose to report their financial statements on a quarterly or semi-annual basis as well.

Question 17

Assets at New Fashion Stores, Inc. equal $10 million. Liabilities equal $8 million. Therefore, owners' equity equals $2 million.

Accepted Answer

This is correct accounting equation: Assets = Liabilities + Owners' Equity. Therefore, $10 million (assets) = $8 million (liabilities) + $2 million (owners' equity).

Question 18

Because accounting requires a great deal of precision and accuracy, there is no room for interpretation in accounting.

Accepted Answer

While accounting does require precision and accuracy, there can still be some interpretation involved, particularly in areas such as financial reporting standards and tax regulations where there may be differing opinions on how to apply rules and principles. However, it is important for accountants to ensure that their interpretations are supported by evidence and are consistent with relevant guidelines.

Question 19

Assets are the amounts that a companies owes to its creditors.

Accepted Answer

Assets are the amounts that a company owns, whereas liabilities are the amounts that a company owes to its creditors.

Question 20

A common set of country-neutral accounting standards is known as International Financial Reporting Standards (IFRSs).

Accepted Answer

IFRSs are indeed a common set of country-neutral accounting standards that are used internationally.

Quiz 15: Financing and Tracking Business Operations