Study Guide 3 ( ch. 12 & 13)

In which situation might the balance sheet under report a firm's financial strength?

When R & D is a major strength of a company

Money presents two big problems to small business owners. First, is how much money the business has, will receive, and must pay to others. Second, is:

When the money will be received and when the money will be paid

Properly prepared financial statements agree such that the cash flow statement provides the ending cash balance for the:

balance sheet

Checking and savings accounts are the most common forms of:

demand deposits

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

There are disputes over when to report revenues

Which answer option is a statement of what a business owns, what it owes to others, and how much value the owners have invested in it?

balance sheet

The most effective cash flow techniques require:

budgeting for both the amount and timing of required cash flows

A(n) _________ identifies when, how, and why money is expected to come into the business, and when, how, and why it is expected to leave.

cash budget

For small businesses, the key to cash planning is the _________ which identifies when, how, and why cash enters and exits the business.

cash budget

Debt investments that mature in less than three months are an example of:

cash equivalents

Sets of budgets that detail all projected receipts and spending for the budget period are called:

comprehensive budgets

A ________is a form of money that can be immediately used to make payments.

travelers check

Legal obligations to give up things of value in the future are known as:

liabilities

Training and flexible hours are a part of the _________ strategy used to control money that is expected to leave the firm.

noncash incentive

Tara's friend Robbie worked at the local coffee shop. Tara always stopped to get her morning coffee from the shop because Robbie would fix her a deluxe coffee but only charge her for a standard cup of coffee. This is an example of:

skimming

Which answer option is defined as the practice of "pocketing" money from customers and hiding the theft by not recording the sale?

skimming

The primary purpose of managerial accounting is to:

support good decision making

Which scenario is not one of the primary causes of cash flow problems for small businesses?

tax obligations

Which financial report provides the value of the things the business owns and who has a claim on that value?

the balance sheet

Juan has an accounting philosophy according to which he keeps the loans borrowed from the business separate from the loans he takes from banks for his own purposes. Which basic accounting concepts is reflected in Juan's accounting philosophy?

the business entity idea

Breakeven equals fixed cost divided by:

the contribution margin

The most common strategy employed by small businesses for handling money shortages is:

using personal money

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

variance

Mr. Hill, who runs a key-chain manufacturing unit, buys raw materials from his supplier during the first week of every month. The supplier's policy states that all payments need to be cleared within 50 days of buying the materials. This schedule ensures that Mr. Hill gets an extended period to make payments thus controlling when the payment is made. Which strategy is Mr. Hill using to control cash outflow?

timing the purchase

Which of the answer options is not one of the three purposes of money?

to grow wealth

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

Liquidity

An accounting method that is specifically intended to be used for planning, directing, and controlling a business is called:

Managerial Accounting

The difference between assets and liabilities of a business is called its:

owners equity

The _________ is also called the Statement of Financial Position.

Balance Sheet

Money that is immediately available to be spent is called:

Cash

Aaron, a businessman, has a method of keeping track of accounts receivable by sorting them into groups of those that are 30, 60, 90, and over 90 days past due. Aaron decides to sell long delinquent accounts to a collection agency. Which action will the collection agency which buys the delinquent accounts from Aaron take?

Collect the entire amount owed and keep all the money it obtains

Which answer option is an example of a cash equivalent?

Commercial paper

Which ratio is used to estimate the liquidity of a business?

Current Ratio

A(n) _________ budget combines a purchases budget with a cost of goods sold budget.

Inventory

_________ information and reports are used when planning, organizing, staffing, directing, and controlling.

Managerial Accounting

Most small businesses experience difficulty or even fail because of (1) the mismatch in time between receiving cash and spending cash and (2) the:

Mismatch between the size of payments received and the size of payments that must be made.

_________ 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.

Net present value

_________is the most used item on the income statement.

Operating income

_________ refers to amounts that are owed to a business for merchandise that was sold on credit.

Receivables

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

Retained Earnings

Which statement is true when setting up your accounting system?

The actual task of setting up an accounting system is quite easy if you understand accounting a bit

Which statement is not true of preparing pro forma financial statements for your business plan?

The financial projections in your business plan are not useful for day-to-day management of your business.

Which of the answer options is a true statement?

The multi-step format of the income statement includes the cost of selling

Which scenario is not something a manager needs in order to make good decisions?

a good support system

Lenders use operating income as:

a measure of how much debt a business can support

Many businesses have either relatively few large sales events or highly seasonal sales that complicate forecasting cash inflows. Which answer option is not an example of such a company?

a restaurant

The "going concern" concept states that:

a successful business will stay in business

Which these accounting functions has been accurately described?

accounts payable records help to make timely payments in order to capture prompt pay discounts and to maintain a good credit rating for a business

Aaron, a businessman, has a method of keeping track of accounts receivable by sorting them into groups of those that are 30, 60, 90, and over 90 days past due. Aaron's key in controlling receivables is to have them _________, by sorting them into groups.

aged

In breakeven analysis, the price of one unit minus the variable cost of one unit is called the:

contribution margin

An expense recognized at the time of a sale of merchandise in the amount of the cost of the merchandise to the seller is called:

cost of goods sold

When Tyree buys a new computer, he pays for it with a personal check. This is an example of using a:

demand deposit

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

depreciation

To protect your business from having cash drained by employees, you first must hire honest and ethical people, and secondly:

develop and enforce effective internal control over who may handle cash and who may account for cash

In the accounting equation, assets equal:

liabilities + owners equity

Any debt that must be paid in less than one year from the date of the financial statement on which it is reported is considered:

short term debt

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

Financial Strength

Which answer option is a technique used by a small business to increase cash inflows?

offering discounts for prompt payment

The time required for a business to acquire resources, convert them into a product, sell the product, and receive cash from the sale is referred as the ________ cycle of a business.

operating

The output level necessary to attain any specific profit goal is calculated by adding the desired profit to the fixed cost then dividing the sum by:

the contribution margin of one unit

Larry owns a successful business called Super Car-Hire. He plans to sell it to Bob. Bob assumes that he can keep up the high revenues if he can plan and execute the mission of the business well. Which basic accounting concepts is reflected in Bob's assumption?

the going concern expectation

Which scenario accurately describes fixed costs?

they are unaffected by changes in output

Percentage discounts from gross invoice amounts provided to encourage prompt payment are called:

trade discounts

Which of these current ratio amounts would be considered the 'best' current ratio?

4.0

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

Financial Accounting

________ 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.

Financial Flexibility

Cash that can be obtained from stocks, bonds, land, buildings, or equipment that a business has is called:

cash flow from investing

Planning and tracking the amounts and timing of money to be received and paid during the business cycle is:

cash flow management

_________ refers to the practice of accepting goods for resale, without taking ownership of them and without being responsible to pay prior to their being sold.

consignment

When forensic accountants investigate employee embezzlement, nearly every case could have prevented the loss by:

effective separation of duties

When most people use the term 'accounting' they are really referring to _________ accounting, which is based on a set of rules called GAAP.

financial

Which accounting functions focus the most on automatically calculating and accumulating depreciation?

fixed asset accounting

A crisis in which there is a shortage of cash for expanding a business after an exponential increase in sales is termed:

growth trap

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

income statement

Which answer option is considered a common cash outflow from operating activities?

income taxes

Which scenario is true of managerial accounting?

it is forward looking in nature

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

it records provision of credit to customers

Which scenario is true regarding the balance sheet?

it's values are considered as historical values

Amounts owed to vendors for merchandise or services purchased on credit are called:

payables

Which accounting functions ensure that the employment taxes are kept current?

payroll records

Which statement is not true of money?

profits are one form of money