Chapter 12: Small Business Accounting: Projecting and Evaluating PerformanceAssignment

______ ratio is the value of current assets divided by current liabilities.

Current

True or false: Small online businesses that have very little cost of labor are mandated to show labor as a separate amount.

False

Which of the following statements regarding accounts receivable are correct? (Check all that apply.)

The key to controlling receivables is to sort them by age, so older receivables stand out. Accounts receivable is money that customers owe a company. Many businesses treat receivables that are more than 90 days old as delinquent.

True or false: An appropriate accounting system records details of financial dealings that ease the task of verifying business conduct.

True

Operating activities are

activities involved in producing and selling goods and services.

A decrease in owners' equity caused by consuming a business' product or service is called a(n)

expense

The ______ is an accounting concept that a business is expected to continue in existence for the foreseeable future.

going concern concept

The ______ is a statement that lists revenues and expenses and shows the amount of profit a business makes for a specified period of time.

income statement

An asset that is acquired for the purpose of either generating future incomes and cash flows or appreciating in value to provide an increase in future wealth is called a(n)

investment

Planning documents for future business activities that are formatted to look like the common financial statements of the income statement, balance sheet, and statement of cash flows are called ___

pro forma financial statements

The final schedules completed to create a master budget are used to prepare a(n)

pro forma projected balance sheet

______ depicts the number of units that are expected to be acquired during a budget period.

purchases budget

The purpose of an inventory budget is to

simplify the budget process

A method for business forecasting and control in which specific expected volumes and prices per unit are used is called ___ ___

standard budgeting

Identify the schedules that must be completed to create a master budget. (Check all that apply.)

A cash receipts budget A cash budget

A statement of the sources and uses of cash in a business for a specific period of time is known as the

A statement of the sources and uses of cash in a business for a specific period of time is known as the

Which of the following tasks should an accounting system easily and efficiently accomplish? (Check all that apply.)

Aiding in the development of a cash budget Enabling an exhaustive context-sensitive help function

Which of the following formulas is used in a purchases budget to produce most of the schedules of a master budget?

Amount to be bought = Amount to be used + Desired ending amount - Beginning amount

Fixed asset

Automatically calculates and adds depreciation

Inventory

Calculates appropriate stocking and reorder levels

______ activities are the purchase and sale of land, buildings, equipment, and securities.

Investing

Identify the true statements about the Modified Accelerated Cost Recovery System (MACRS). (Check all that apply.)

It allows taxpayers to depreciate more of a cost earlier in the life of a capital expense. It is set by the Internal Revenue Service.

Which of the following is one of the five primary criteria for a small business' recording-keeping system? (Check all that apply.)

It must be understandable to the manager. Its data must be secure. It must assure that the details are accurate. It should be simple to use. Its reports must be timely.

Which of the following statements about the balance sheet are correct? (Check all that apply.)e

It provides information on current and long-term assets and liabilities. It presents a snapshot of a business' financial holdings and liabilities at the close of business on a specified date. It is also called the statement of financial position.

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

Liquidity

In the context of the labor budget, which of the following steps are included in predicting labor costs when they vary with the output amount? (Check all that apply.)

Multiplying the labor cost per unit with the number of units produced Estimating the amount of labor required to produce each unit

______ activities are those activities involved in producing and selling goods and services.

Operating

Investment records

Records if businesses keep surplus cash invested in securities

______ is an increase in owners' equity caused by selling a product or service.

Revenue

Accounts receivable

Shows records of credit given to customers

Which of the following statements about the balance sheet are correct? (Check all that apply.)

This statement is called a balance sheet because of accounting equation must balance. It is a statement of what a business owns, owes, and the value that the owners have invested in it. It contains a business' assets, liabilities, and equity.

______ costs are those costs that change with each unit produced.

Variable

Managerial

______ accounting is used by managers for planning, directing, and controlling a business.

Money that is owned to a business by customers is tracked by the firm's

accounts receivable

Revenue is

an increase in owners' equity caused by selling a product or service.

Generally accepted accounting principles

are standardized rules for accounting procedures set out by the FASB and used in all audits, and submissions of accounting reports to the government.

Investing activities

are the purchase and sale of land, buildings, equipment, and securities.

An easy and effective accounting system helps a firm maintain an internal "______" that records all entries and modifications to the accounting system to allow errors to be identified and corrected.

audit trail

A financial plan for the future based on a single level of operations is called a

budget

Variable costs are expenses

that change with each unit produced.

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

variance

A statement of the sources and uses of cash in a business for a specific period of time is known as the

cash flow statement

Which of the following statements regarding the current ratio are correct? (Check all that apply.)

The rule of thumb for evaluating current ratio is that the minimum acceptable ratio is 2.0. It is calculated by dividing current assets by current liabilities. It is the most common ratio to estimate a business' liquidity.

True or false: The common financial statements provide business owners with information to help make informed decisions regarding a firm's operations and overall financial health.

True

Aspects of the world outside a business that could change the business's costs are called

external factors

Which of the following are assumptions that underlie basic accounting concepts? (Check all that apply.)

An operating business will continue to remain in business. A business is separate from its owners.

Which of the following methodologies help reduce the trouble of selecting from among investment options? (Check all that apply.)

Differential revenues and expenses Net present value analysis

Which of the following statements about the business entity concept are correct? (Check all that apply.)

It makes it possible to separate business and personal transactions. It underlies the legal forms of establishing businesses such as corporations, limited partnerships, and limited liability companies. It is implicit in all business regulation.

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

depreciation

A business' ability to manage cash flows in such a manner that the company can respond appropriately to unexpected opportunities and needs is called financial Blank______.

flexibility

The standardized rules for accounting procedures set out by the Financial Accounting Standards Board (FASB) and used in all audits and submissions of accounting reports to the government are known as _____.

generally accepted accounting principles

Aspects within a business that could change the business's costs are called

internal factors

Which of the following is an example of a variable cost? (Check all that apply.)

sales commissions raw materials product shipping

If a firm owner's equity in the firm is $100,000 and he or she has liabilities that amount to $22,000, then according the accounting equation, his or her assets would be worth

$122,000

Which of the following statements regarding variances are correct? (Check all that apply.)

An owner may be able to determine where the business is not meeting its goals by studying the variances report. A business owner should examine the variance to determine the significance between the budget and actual spending. Budgets will always have at least a small variance. Small variances should be ignored

Which of the following statements describing a business that is financially flexible are correct? (Check all that apply.)

The business has the ability to increase efficiency and lower operation costs. The business has the ability to obtain loans or sell additional stock. The business is able to sell nonoperating assets.

In the context of accounting functions, _____ records to track what a business owes and to make timely payments in order to capture prompt pay discounts and help maintain a good credit rating for a business.

accounts payable

A(n) ______ describes what a business owns, what it owes to others, and how much value the owners have invested in it.

balance sheet

An accounting statement of what a business owns, what it owes to others, and how much value the owners have invested in it is known as a(n)

balance sheet

The ___ concept is a concept that a business has an existence separate from that of its owners.

business entity

Which of the following is implied by the going concern concept?

As a separate unit, a business may continue even if it is bought by another owner.

Which of the following is one of the common financial statements? (Check all that apply.)

Cash flow statement Statement of owners' equity Statement of retained earnings Balance sheet Income statement

Which of the following statements about the income statement are correct? (Check all that apply.)

It is the primary source of information about a business' profitability. Revenues - Expenses = Net Income. The single-step and multiple step are two formats commonly used for creating an income statement.

Which of the following statements about cash flow statements are correct? (Check all that apply.)

Operating, investing, and financing activities are the three most common activities the cash flow statement reports. Business owners should create cash flow statements that are developed from the business' cash records. It reports cash inflows called receipts and outflows known as payments for a specific period of time.

A(n) _____ combines a purchases budget and a cost of goods sold budget.

inventory budget

Which of the following statements about budgeting are correct? (Check all that apply.)

It becomes a standard against which a business' performance can be measured. The first step of budgeting is making a forecast of future sales. The budget becomes the basis for controlling activities and the use of resources. It is a quantitative expression of the use of resources necessary to achieve a business' strategic goals.

The ______ demonstrates that the claims of creditors and owners in total cannot be greater than the asset value of a business.

accounting equation

The basic accounting concept that assets equal liabilities plus owners' equity is known as the ___

accounting equation