Question 1

What are the limitations of a balance sheet?

Accepted Answer

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Question 2

_____ 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

Accepted Answer

The accounting method which assigns costs based on the different types of work a business does in order to sell a particular product or service is called activity-based cost estimates. This involves identifying the different activities that contribute to the production or delivery of a product or service, and then assigning costs based on the consumption of resources by each activity. This approach provides a more accurate estimate of the true cost of producing a product or service, as it takes into account the actual activities involved rather than just allocating costs based on a simple formula such as direct labor hours or machine hours.

Question 3

Define the terms liquidity,financial flexibility,and financial strength.Explain the difference between financial flexibility and financial strength.

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Question 4

A(n)_____ analysis is a simplification methodology used to reduce the magnitude and complexity of the information that must be considered in making an appropriate decision when choosing from among investment alternatives.
A) SWOT
B) time-series
C) auditor's report
D) net present value

Accepted Answer

Net present value analysis involves calculating the present value of expected cash inflows minus the present value of expected cash outflows to determine the profitability of an investment. This methodology helps decision-makers compare investment alternatives and select the most economically viable option. It simplifies the decision-making process by focusing on the most critical factor, profitability. On the other hand, SWOT analysis provides an overview of the internal and external factors that impact an investment decision. A time-series analysis focuses on studying a specific variable's behavior over time, while an auditor's report provides an opinion on the financial statements' accuracy and reliability. While these analyses are useful, they do not provide a direct comparison of investment alternatives' profitability.

Question 5

Is accounting important to small businesses? Explain.

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Question 6

Identify and briefly describe the five basic accounting concepts.

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Question 7

The difference between an actual and budgeted revenue or cost is called:
A) liquidity.
B) financial flexibility.
C) variance.
D) investing activities.

Accepted Answer

The difference between actual and budgeted revenue or cost is called variance. This variance can be positive (actual revenue is higher than budgeted revenue) or negative (actual cost is higher than budgeted cost). Analyzing the variance can help a company identify areas where they are under or over performing and make adjustments to their budget or operations.

Question 8

Which of the following is true of the differential revenues and expenses method?
A) It is used to increase the magnitude and complexity of the information that must be considered in making an appropriate investment decision.
B) It is estimated by only using cash flows.
C) It is based on the concept that a dollar to be received right now has more value than does a dollar to be received at some time in the future.
D) It comprises of estimating the changes in revenues and expenses from current operating results that will occur if an alternative is chosen.

Accepted Answer

The differential revenues and expenses method involves estimating the changes in revenues and expenses that will occur if an alternative is chosen, making option D the correct choice. Option A is incorrect because the method is not used to increase the complexity of information considered. Option B is incorrect because it takes into account not only cash flows, but also changes in revenues and expenses. Option C is incorrect because it pertains to the time value of money and not the differential revenues and expenses method.

Question 9

To perform _____ analyses,only cash flows are considered.
A) benchmarking
B) net present value
C) cost-benefit
D) SWOT

Accepted Answer

Net present value (NPV) analysis is used to determine the value of an investment by comparing the present value of expected cash inflows to the present value of expected cash outflows. This analysis only considers cash flows and does not take into account non-monetary factors such as benchmarking, cost-benefit or SWOT analyses.

Question 10

Briefly explain cost-volume-profit (CVP)analysis.

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Question 11

Describe the mechanics of a cash flow statement.

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Question 12

The decision rule for an NPV analysis is to accept:
A) the smallest negative NPV.
B) the largest negative NPV.
C) the NPV closest to zero.
D) the largest positive NPV.

Accepted Answer

The best decision rule for an NPV analysis is to accept the project with the largest positive NPV. This means that the project is expected to generate the highest amount of net cash inflows over its lifetime, which will create value for the organization. Choosing the largest negative NPV (B) or the smallest negative NPV (A) would mean accepting a project that is expected to generate net cash outflows, resulting in a loss for the organization. The NPV closest to zero (C) may be acceptable, but it does not necessarily mean that the project is the best option for the organization.

Question 13

The quantity of items 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.

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Question 14

The process of determining the effect of price and quantity changes on revenues and expenses refers to:
A) accounting analysis.
B) variance analysis.
C) pro forma budgeting.
D) financial flexibility.

Accepted Answer

Variance analysis involves comparing actual results with budgeted or expected results in order to identify areas where changes in price or quantity have affected revenues and expenses. This process helps managers to determine the reasons for any deviations from the budget and to take corrective action if necessary. Accounting analysis involves the preparation and interpretation of financial statements, pro forma budgeting involves the preparation of projected financial statements based on anticipated changes in revenues and expenses, and financial flexibility refers to a company's ability to adjust to changes in market conditions. While all of these concepts are related to financial analysis, they do not specifically focus on the effect of price and quantity changes on revenues and expenses.

Question 15

Which of the following is true of theories based on the bounded rationality models?
A) It assumes that people are inefficient processors of information.
B) It assumes that people use complete information and incomplete analyses to make decisions.
C) It assumes that people have unlimited abilities to obtain and process information.
D) It assumes that the human mind is fundamentally irrational.

Accepted Answer

The bounded rationality models assume that people are not capable of processing all available information efficiently, which leads to incomplete analyses and suboptimal decision-making.

Question 16

Briefly discuss the different types of budgets that make up the master budget.

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Question 17

What are some of the tasks an accounting system should be able to perform in order to ensure that a business's accounting information is accurate,reliable,and useful?

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Question 18

An implication of the bounded rationality models of management is that:
A) all decision making processes are inherently perfect as human beings are rational beings.
B) all decision making processes essentially involves dealing with a resource of unlimited reasoning power.
C) the proficiency of a decision process increases exponentially with increase in information that is used for that process.
D) the more information available to be included into the decision process,the less efficient that process will be.

Accepted Answer

Bounded rationality models suggest that human beings have limited cognitive capabilities and information processing abilities. Therefore, the more information available for a decision-making process, the more difficult it becomes to process and make an efficient decision. This implies that decisions made under bounded rationality may not be perfect or optimal, but rather satisfactory in nature. Therefore, option D is the correct choice.

Question 19

Differentiate between income statement and balance sheet.

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Question 20

_____ analysis is based on the concept that a dollar to be received right now has more utility than does a dollar to be received at some time in the future.
A) Liquidity
B) Net present value
C) Financial strength
D) Budget

Accepted Answer

The concept described in the statement is related to the calculation of net present value (NPV), which discounts future cash flows to their present value based on the time value of money. A liquidity analysis looks at an entity's ability to meet short-term obligations, financial strength analysis looks at the overall financial condition of an entity, and a budget is a plan for future income and expenses.

Quiz 13: Small Business Accounting: Projecting and Evaluating Performance

What are the limitations of a balance sheet?

_____ 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.

Define the terms liquidity,financial flexibility,and financial strength.Explain the difference between financial flexibility and financial strength.

A(n) _____ analysis is a simplification methodology used to reduce the magnitude and complexity of the information that must be considered in making an appropriate decision when choosing from among investment alternatives.

Is accounting important to small businesses? Explain.

Identify and briefly describe the five basic accounting concepts.

The difference between an actual and budgeted revenue or cost is called:

Which of the following is true of the differential revenues and expenses method?

To perform _____ analyses,only cash flows are considered.

Briefly explain cost-volume-profit (CVP)analysis.

Describe the mechanics of a cash flow statement.

The decision rule for an NPV analysis is to accept:

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

The process of determining the effect of price and quantity changes on revenues and expenses refers to:

Which of the following is true of theories based on the bounded rationality models?

Briefly discuss the different types of budgets that make up the master budget.

What are some of the tasks an accounting system should be able to perform in order to ensure that a business's accounting information is accurate,reliable,and useful?

An implication of the bounded rationality models of management is that:

Differentiate between income statement and balance sheet.

_____ analysis is based on the concept that a dollar to be received right now has more utility than does a dollar to be received at some time in the future.