Entrep187 Final Exam PT5 (Ch12)

To ensure your accounting information is accurate, reliable, and useful, the accounting system you choose should easily and efficiently maintain an internal "audit trail".

True

Financial flexibility of a business is a matter of judgment, whereas financial strength is an objective assessment

False

Formal summaries of the content of an accounting system's records of transactions are called financial instruments

False

Statement of cash flows is also referred to as the statement of financial position

False

The accounting equation is simply stated as Assets = Liabilities - Owners' Equity

False

Variable costs decrease if output increases.

False

The usefulness of the income statement for managing a small business is related to the amount of detail available in the statement

True

Which of the following is not one of the primary criteria for a small business's record keeping system?

The ability to outsource the task

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

2.0.

Which of the following is not something a manager needs in order to make good decisions?

A good support system

_____ 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

Activity-based cost estimates

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. Which of the following actions will the collection agency which buys the delinquent account from Aaron do?

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

Identify the managerial accounting technique which looks at the fixed and variable costs of a business to arrive at a number of unit sales to maximize gains.

Cost-volume-profit analysis

Expendables are necessarily fixed costs

False

Expenses are the value given up to obtain something that the owner wants

False

Financial accounting is forward-looking and attempts to predict the results of management decisions

False

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

It assumes that people are inefficient processors of information.

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

Managerial accounting

Which of the following reconciles the net increase or decrease with the beginning cash balance and the ending cash balance?

Net change in cash balance

Which of the following is true of financial statements?

The overall content and form of financial statements have been made standard by long usage.

Cash flow statements can be either direct statements or indirect statements

True

Liquidity is a measure of the ability of a business to meet both short-term and long-term obligations.

True

One of the difficulties in understanding and interpreting the income statements is the dispute over when one should recognize revenues

True

One reason why accounting is important to a small business is that it shows how much your business is worth

True

The primary reason to acquire and use a computerized accounting system in your business is to ensure the accuracy of your accounting information.

True

Lenders use operating income as:

a measure of how much debt a business can support

A financial plan for the future based on a single level of operations is called a(n):

budget.

Eddie, the owner of a fast-food joint, finds that he spends far lesser when he bakes breads in dozens than when he bakes two or three loafs at a time. This idea of Eddie's is similar to the concept of:

economy of scale.

The primary purpose of managerial accounting is to ________.

support good decision making

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

variance analysis.