Question 1

_____ refers to the ability of a business to survive adverse financial events.
A) Liquidity
B) Financial flexibility
C) Financial strength
D) Profitability

Accepted Answer

Financial strength refers to a business's ability to weather financial difficulties, such as an economic downturn, unexpected expenses or falling revenue. This is typically measured by analyzing a company's debt-to-equity ratio, working capital, and other financial indicators. Liquidity (A) refers to a company's ability to meet short-term financial obligations, profitability (D) refers to its ability to generate profit over time, and financial flexibility (B) refers to its ability to adapt its financial operations to changing circumstances. While all of these factors are important for a business's financial well-being, financial strength is specifically concerned with its ability to withstand economic shocks and remain financially viable.

Question 2

The value of current assets divided by current liabilities is called:
A) inventory turnover ratio.
B) current ratio.
C) total assets to total liabilities ratio.
D) current equity ratio.

Accepted Answer

The value of current assets divided by current liabilities is called the current ratio. This ratio is used to measure a company's ability to pay off its short-term obligations using its current assets. A higher current ratio indicates that a company is more likely to meet its short-term liabilities.

Question 3

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.

Accepted Answer

The answer of Which of the following is a difficulty...

Question 4

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.

Accepted Answer

The overall content and form of financial statements have been made standard by long usage. While there may be some variations based on industry, the basic components of financial statements (balance sheet, income statement, cash flow statement) are standardized and recognized globally. Customization of financial reports is not illegal, but it is important for financial statements to follow generally accepted accounting principles (GAAP) to ensure consistency and accuracy in reporting. Bankers and investors are typically familiar with standard financial statements as they use them to assess the financial health of a company.

Question 5

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

Accepted Answer

The balance sheet provides a snapshot of a business's financial position, including assets (what it owns), liabilities (what it owes to others), and equity (how much value the owners have invested in it). The income statement shows revenue and expenses over a period of time, the cash flow statement shows how cash moves in and out of the business, and the statement of retained earnings shows changes in the company's retained earnings over time.

Question 6

Which of the following is a correct representation of typical accounting functions?
A) Credit card sales function helps to ensure that payroll and employment taxes are kept current.
B) Accurate and timely accounts receivable records are essential for making decisions concerning the extension of credit.
C) Leasehold records help to ease the problems of keeping necessary insurance coverage current and in force.
D) Insurance register helps to track the amount of discount and charge backs taken by your credit card provider.

Accepted Answer

Accurate and timely accounts receivable records are important for making informed decisions about extending credit to customers. This is a typical accounting function as it involves managing and tracking financial transactions related to the sale of goods or services, which is a core component of the accounting process. The other options, such as credit card sales function, leasehold records, and insurance registers, may also be important for managing financial data but are not necessarily representative of typical accounting functions.

Question 7

Which of the following accounting functions aids in calculation of appropriate stocking and reorder levels?
A) Insurance register
B) Investment records
C) Inventory accounting
D) Payroll records

Accepted Answer

Inventory accounting is the function that tracks and values a company's inventory. This information is used to determine appropriate stocking levels and when to place reorders. Insurance register, investment records, and payroll records do not typically provide information related to inventory management.

Question 8

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.

Accepted Answer

Accounts payable records help in making timely payments, which helps in capturing prompt pay discounts and maintaining a good credit rating for the business.

Question 9

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.

Accepted Answer

Lenders use operating income as a measure of how much debt a business can support. This is because operating income represents a company's income from its core operations, which is used to pay off its debts. Therefore, lenders use operating income as an indicator of a business's ability to service its debt obligations.

Question 10

_____ is the most used item on the income statement.
A) Net income
B) Cost of sale
C) Revenue
D) Operating income

Accepted Answer

The answer of _____ is the most used item on...

Question 11

_____ 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

Accepted Answer

Liquidity measures a company's ability to convert assets into cash quickly. It is important for companies to maintain a certain level of liquidity to meet their short-term obligations and manage unexpected expenses.

Question 12

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.

Accepted Answer

Retained earnings refer to the sum of profits and losses that have been accumulated by a company since its inception, minus any dividends that have been paid out to shareholders. It is a measure of how much money the company has kept, rather than distributed to its investors. Liabilities are the debts owed by a company, net income is a measure of profit in a given time period, and tax liability refers to the amount of taxes owed to the government.

Question 13

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

Accepted Answer

The articulation concept assumes that there is a logical flow of information between the financial statements, specifically from the income statement to the statement of retained earnings, then to the statement of owners' equity and finally to the balance sheet. This ensures that the information presented is accurate and consistent. The going concern concept assumes that the business will continue to operate indefinitely, the opportunity cost concept refers to the cost of forgoing one option for another, and the leveraging concept refers to the use of debt to finance investments. None of these concepts relate to the flow of information between the financial statements.

Question 14

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

Accepted Answer

The income statement shows revenues and expenses and calculates the profit or loss for a specified period of time. The balance sheet shows the company's assets, liabilities, and equity at a specific point in time. The statement of retained earnings shows changes in the company's retained earnings account over a period of time. The cash flow statement shows the inflows and outflows of cash during a specified period of time.

Question 15

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.

Accepted Answer

Accounts receivable records provision of credit to customers, it is an asset account which tracks money owed to a business by its customers. It does not track what the business owes, record all checks written or payments made, and it is not independent of the extension of credit.

Question 16

_____ 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

Accepted Answer

Financial flexibility is the ability of a business to manage its cash flows effectively to enable it to respond to unforeseen events or opportunities. This capability is necessary for a company to remain competitive and to survive in the long term. It allows a business to take advantage of new opportunities or to respond to unexpected problems without compromising its financial stability.

Question 17

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

Accepted Answer

Formal summaries of the content of an accounting system's records of transactions are called financial statements. Financial securities, financial instruments, and financial derivatives are all types of financial products, but not necessarily related to accounting records summaries.

Question 18

Which of the following is true of typical accounting functions used in businesses?
A) Inventory accounting facilitates maintenance of appropriate levels of inventory and aids in calculation of appropriate stocking and reorder levels.
B) Fixed assets record the improvements to leased property or equipment made by the business.
C) Payroll records automatically calculate and accumulate depreciation.
D) Accounts receivable records track what one owes and helps to make timely payments.

Accepted Answer

Inventory accounting is used to ensure that a business maintains appropriate levels of inventory and aids in the calculation of stocking and reorder levels.

Option B is incorrect as fixed assets accounting records the cost and depreciation of long-term assets owned by the business, not leased property.

Option C is incorrect as payroll records track employee compensation and taxes and do not have anything to do with the accumulation of depreciation.

Option D is incorrect as accounts payable records track what a business owes to its suppliers, while accounts receivable records track what is owed to the business by its customers. It does not aid in making timely payments.

Question 19

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

Accepted Answer

The answer of Which of the following ratios is used...

Question 20

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.

Accepted Answer

The answer of The rule of thumb for evaluating current...

Quiz 13: Small Business Accounting: Projecting and Evaluating Performance

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

The value of current assets divided by current liabilities is called:

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

Which of the following is true of financial statements?

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?

Which of the following is a correct representation of typical accounting functions?

Which of the following accounting functions aids in calculation of appropriate stocking and reorder levels?

Which of the following accounting functions has been accurately described?

Lenders use operating income as:

_____ is the most used item on the income statement.

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

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

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?

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

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

_____ 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.

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

Which of the following is true of typical accounting functions used in businesses?

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

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