MGMT 375 Exam 1 SELU Settoon
True or false: Cash flow statements can be either direct statements or indirect statements.
- True
Using methods to appear to be paying bills on time, when in fact the cash outflow is being delayed or avoided is called _____.
- Gaming in the payment process
Josh, the owner of a software company, is facing cash flow problems. To control the cash outflow, he avoids paying the bills to his vendors. After much delay, he sends a check in payment but intentionally forgets to sign the check. To prevent the cash from going out of his business, Josh is applying the strategy of _____.
- Gaming the payment process
The __________ is an accounting concept that a business is expected to continue in existence for the foreseeable future.
- Going concern concept
Which of the following is an example of a fixed cost?
- Rent - Loan payments - Truck leases
Which of the following elements are likely to be included under the recurring payments section of a cash flow report?
- Rent - Wages
Which of the following is a primary cause of cash flow problems in small businesses?
- Requirement for making big capital investments periodically
The sum of all profits and losses, less all dividends paid since the beginning of a business is called ______.
- Retained earnings
Which of the following are non-cash incentives?
- Stock options - Time off - Praise - Extra vacation days
The __________ concept is a concept that a business has an existence separate from that of its owners.
- Business entity
Which of the following statements about reconciling bank balances with a business' book balances are correct?
- Businesses should bank where online access to account information that is continuously updated is offered - The owner should reconcile company book balances with bank balances to avoid cash flow problems - Service charges, direct customer payments, interest received or charged, and returned checks will affect the bank balance
Which of the following is a difficulty that arises in understanding and interpreting the income statements?
- There are disputes over when to recognize revenues
To protect your business from having cash drained by employees, you first must hire honest and ethical people, and secondly, _____.
- Develop and enforce a system of effective internal control over which employees may handle cash and which employees may account for cash
A reduction in the sales price provided to credit customers for paying outstanding amounts in a timely manner is referred to as a _____ for prompt payment.
- Discount
Which of the following transactions go through a clearinghouse?
- Drafts - Checks - Electronic transfers
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 are one of the six items that must be reported in the statement of cash flows?
- Cash flows from operating activities - Cash flows from investing activities - Cash flows from financing activities - Net effect of foreign exchange rates - Net change in cash balance during the period - Non-cash investing and financing activities
A ______ budget is a schedule of the amounts and timings of the receipt of cash into a business.
- Cash receipts
Lenders use operating income as __________.
- A measure of how much debt a business can support
Liquidity is __________.
- A measure of how quickly a company can raise money through internal sources by converting assets to cash
The "going concern" concept states that __________.
- A successful business will stay in business
True or false: Short-term debts are not transferable to other investors.
- False
Rewards that do not require payments of cash are called _____ incentives.
- Non-cash
Regular and systematic reduction in income that transfers asset value to expense over time is called __________.
- Depreciation
After ________, the corrected bank balance and corrected book balance will be identical.
- Reconciling
Customers may overdraft their accounts by paying a check when _____.
- The available balance is not sufficient to cover the check amount
Which of the following are factors that control cash outflow?
- The amount of cash that is to be paid out - The timing of cash payout
A crisis in which there is a shortage of cash for expanding a business after an exponential increase in sales is termed _____.
- Growth trap
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
True or false: In situations of non-sufficient funds (NSF), checks are returned to the depositors.
- True. A check is returned to a depositor because the writer of the check did not have a bank available balance equal to or greater than the amount of the check. In other words, the writer's bank account lacks sufficient money to cover the transaction and this situation is called non-sufficient funds (NSF).
True or false: Timing purchases is a technique that can provide a business with extra time to pay a bill for inventory, equipment, or services.
- True. Knowing when a vendor bills allows the purchaser to time when the purchase is made to take advantage of the maximum time to pay
Managerial accounting is __________.
- Used by managers for planning, directing, and controlling a business
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
Cash outflow is __________.
- Capital repaid to owners
Total costs __________.
- Are the sum of all expenses incurred within an accounting period
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
Something that a business owns and that is expected to have economic value in the future is known as __________.
- Assets
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 (Assets = Owner's Equity + Liabilities)
Which of the following statements describe a business that has financial strength?
- A business has focused on cash, short-term investments, and its accounts receivable are current - The business has a great deal of cash and cash equivalents on its balance sheet - A business' long-term assets are relatively new, long-term debt is low, and retirement plans are fully funded
Which of the following is not something a manager needs in order to make good decisions?
- A good support system
Which of the following statements 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
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 price of one unit
Which of the following is an operating activity?
- The receipt of cash from customers
Which of the following are limitations of the balance sheet?
- The values listed are historical values - Estimated amounts listed in the sheet can be significantly wrong
Which of the following are true of progress payments?
- They are quite commonplace in the construction industry - They are received from customers
Which of the following statements is true about fixed costs?
- They increase as the number of units produced increases
______ is a method of controlling the timing of cash outflows that is invisible to suppliers and vendors.
- Timing purchases
A financial plan for the future based on a single level of operations is called a ___________.
- Budget
Operating activities are __________.
- Activities involved in producing and selling goods and services
Contracting with people or companies outside a business to do work for that business is called __________.
- Outsourcing
Which of the following tasks should an accounting system easily and efficiently accomplish?
- Aiding in the development of a cash budget - Enabling an exhaustive context-sensitive help function
Which of the following statements regarding the cash budget are correct?
- All business budgeting begins with a forecast of sales - Business owners estimate expected incomes and expenses and when these transactions will occur in order to create the cash budget - It is the key to cash planning for small businesses
_____ is the practice of trading goods and services without the use of money.
- Barter
Which of the following statements regarding factoring receivables are correct?
- A factor charges a fee of around 5% of the amount - The factor usually lends between 75% and 80% of the value of accounts receivable - Factoring a business' receivables is considered one of the more expensive financing methods
Business can earn cash flow from operations, investing and _____.
- Financing
Percentage discounts from gross invoice amounts provided to encourage prompt customer payment is called ______.
- Trade discounts
Borrowing money secured by a firm's accounts receivable is called _____ receivables.
- Factoring
Cash inflow is __________.
- Money borrowed through notes, mortgages, and bonds
The ______ balance is the sum of deposits and withdrawals recorded in a bank's accounting records.
- Bank ledger
The ______ balance is the sum of money that has actually been received and paid out of a depositor's account.
- Bank available
Which of the following are assumptions that underlie basic accounting concepts?
- A business is an entity that is separate from its owners - An operating business will continue in business - Accounting information is valuable only if it is useful for the owners and managers of the business - Creditors (lenders and suppliers) have claim on business assets that must be satisfied before any claim of an owner - The claims of creditors and owners cannot be greater in total than the asset value of a business
A negative balance in a depositor's bank account is called _____.
- Overdraft
Two forms of short-term financing are short-term debt and _____.
- Commercial paper
______ is the practice of accepting goods for resale, without taking ownership of them and without being responsible to pay prior to their being sold.
- Consignment
A(n) __________ combines a purchases budget and a cost of goods sold budget.
- Inventory budget
Which of the following statements regarding discounts for prompt payment are correct?
- They may be as much as 2% if the invoice is paid within 5 to 10 business days - They are used to motivate customers to pay their bills in full in a timely manner
Which of the following statements regarding marketable securities are correct?
- They represent either ownership or debt of publicly held firms - The U.S. government issues debt in the form of bonds, notes, and bills that are marketable securities - Marketable securities are bought and sold on major exchanges, such as the NASDAQ
The company book balance reflects a business' internal accounting record of all transactions that affect ______.
- Cash
Which of the following is true of managerial accounting?
- It is forward-looking in nature
In the context of net present value (NPV) analysis, which of the following is a true statement?
- Only cash flows are considered to perform NPV analysis
Which of the following statements describing a business that is financially flexible are correct?
- The business has the ability to obtain loans or sell additional stock - The business has the ability to increase efficiency and lower operation costs - The business is able to sell non-operating assets
Money held in checking and savings accounts are/is called ______.
- Demand deposits
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
Using a computerized accounting system, which of the following documents may be generated that will indicate the amount of cash a business needs immediately?
- An accounts receivable report - An accounts payable report
An entity that processes check and electronic fund transfers for banks and other financial organizations is called a ______.
- Clearinghouse
A ________ is a form of money that can be immediately used to make payments.
- Traveler's check
__________ are those through which cash is obtained from and paid to lenders, owners, and investors.
- Financing activities
Which of the following strategies is used by a business to decrease cash outflows?
- Avoiding the wastage of resources
Which of the following statements about the balance sheet are correct?
- 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 - 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 - It provides information on current and long-term assets and liabilities
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 of the following strategies is Mr. Hill using to control cash outflow?
- Timing the purchase
True or false: A business that is considering the option of outsourcing needs to decide if it should develop a component for its products or purchase that component from other businesses.
- True
True or false: A person or business entity that possesses a security is called a bearer.
- True
True or false: Accounting is important for small businesses because investors will not even consider funding your concept unless you provide specific accounting information in an accepted format.
- True
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
Payables are _____.
- Amounts that are owed to vendors for merchandise or services purchased on credit
The difference between an actual and budgeted revenue or cost is called the ___________.
- Variance
Variable costs are expenses __________.
- That change with each unit produced
Inventory __________.
- Calculates appropriate stocking and reorder levels
Identify the managerial accounting technique that 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
In the context of accounting functions, which of the following is true of accounts receivable?
- It records provision of credit to customers
_____ are known to charge back a sale amount in order to remove it from a business's account if situations such as fraud or customer challenge arise.
- Credit card clearing services
The bills and coins printed by governments to represent money are called ______.
- Currency
___________ ratio is the value of current assets divided by current liabilities.
- Current
Which of the following ratios is used to estimate the liquidity of a business?
- Current ratio
Which of the following reasons account for discrepancies in a bank depositor's bank ledger balance and the actual value of cash held by the bank?
- Delayed collection of deposits - Delayed cash transfers
Which of the following statements regarding the current ratio are correct?
- It is calculated by dividing current assets by current liabilities - The rule of thumb for evaluating current ratio is that the minimum acceptable ratio is 2.0 - It is the most common ratio to estimate a business' liquidity
Which of the following statements about barter are correct?
- It is widely practiced in the U.S. by small businesses - Some like-kind transactions for goods or services are not subject to Federal tax - Barter alleviates the need for cash through trading goods and/or services
Fixed costs __________.
- Remain constant regardless of the output quantity
The information that the account holder knows about his or her account, but the bank does not know, includes _____.
- Any deposits the holder has made after bank closing
Which of the following are true of permanent accounts?
- Assets, liabilities, and owners' equity are examples of permanent accounts - Permanent accounts are kept in balance at all times
______ is a financial crisis that is caused by a business growing faster than it can be financed.
- Growth trap
The __________ demonstrates that the claims of creditors and owners in total cannot be greater than the asset value of a business.
- Accounting equation
A(n) __________ is a chronological list of all additions to and subtractions from a single type of asset.
- Account
___________ are legal obligations to give up things of value in the future.
- Liabilities
The difference between a business' assets and liabilities is called __________.
- Owners' equity
A decrease in owners' equity caused by consuming a business' product or service is called a(n) ___________.
- Expense
True or false: Cash flow management is about keeping large sums of cash on hand at all times.
- False
The basic accounting concept that assets equal liabilities plus owners' equity is known as the ___________.
- Accounting equation
Most investors and all banks expect to be provided financial statements that meet the rules of ___________.
- GAAP
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 ___________.
- Flexibility
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
Which of the following are purposes of controlling the quantity of cash outflow?
- Avoiding waste - Making good buying decisions
Which of the following statements about the growth trap are correct?
- Businesses that grow at exponential rates often experience the growth trap - Too much good news may contribute to a growth trap because of a cash shortage - Growing produces more money, but cash is needed right away to grow, thus the business gets trapped
______ are/is money that is immediately available to be spent
- Cash
The ______ identifies when, how, and why cash is expected to coming into a business, and when, how, and why it is expected to leave.
- Cash budget
The _____ is a schedule of the amounts and timings of payments of money out of a business.
- Cash disbursements budget
Assets that may be quickly converted to cash are called ______.
- Cash equivalents
______ is planning and tracking the amounts and timing of money to be received and paid during the business cycle.
- Cash flow management
Identify the schedules that must be completed to create a master budget.
- Cash receipts budget - Cash disbursements budget - Cash budget
A reduction in a merchant's bank account by a credit card company is called a(n) ______.
- Charge back
Tammy is talented at craft but lacks the cash flow management skills required to run a business. She opens a store, Tammy's Craft Corner, with the help of her son David—a business major. Jane purchases a picture frame from Tammy using a credit card. She notices a crack in the frame and returns it to Tammy. Jane contacts the credit card service provider for a refund. The credit card company removes the sale amount from Tammy's account, which is referred to as a(n) _____.
- Charge back
The sum of the cash inflows and outflows recorded in a firm's accounting records is the ______ balance.
- Company book
Tammy is talented at craft but lacks the cash flow management skills required to run a business. She opens a store, Tammy's Craft Corner, with the help of her son David—a business major—who manages the budgets and expenses of the business. Tammy receives a bulk order from a customer to make 100 paper roses for Valentine's Day. She charges 20 percent of the total sales price in advance and promises to deliver the order within 30 days. The advance payment that Tammy receives for the order before delivering the product is called _____.
- Deposit and progress payment
Cash payments received before a product is completed or delivered are called _____.
- Deposit and progress payments
Which of the following assets and liabilities are excluded from the balance sheet?
- Employee loyalty and morale - Value of licenses
In the context of collecting receivables, which of the following should a firm owner keep in mind when giving credit to a customer?
- Establishing credit terms - Implementing a late fee or penalty if the due date is missed
In the context of a cash disbursements budget, which of the following factors are combined to predict the amount and timing of cash discharge?
- Estimate of expenses - Knowledge of payment patterns
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?
- Estimating the amount of labor required to produce each unit - Multiplying the labor cost per unit with the number of units produced
Which of the following statements regarding cash equivalents are correct?
- Examples of cash equivalents are marketable securities, commercial paper, and debt investments that mature in less than three months - They are assets that may be turned into cash in as little as a few hours - Businesses use cash equivalents to measure how much money is available to be spent
True or false: Net effect of foreign exchange rates and non-cash investing and financing activities are omitted from the statement of cash flows.
- False
True or false: Small online businesses that have very little cost of labor are mandated to show labor as a separate amount.
- False
True or false: The accounting process is structured such that information flows from one financial statement into another financial statement—a relationship called MACRS.
- False
True or false: The most common way employees steal cash from employers is through larceny and embezzlement.
- False. Skimming, pocketing money from customers, and hiding the theft by not recording the sale, are the most prevalent. Embezzlement, however, costs businesses the most money
The ability of a business to survive adverse financial events is referred to as a business' ___________.
- Financial strength
Financial statements are defined as __________.
- Formal summaries of the content of an accounting system's records of transactions
Which of the following represents a best cash flow management practice?
- Having enough cash available to meet business needs - Being able to obtain cash quickly from a variety of sources - Understanding how (and when) cash is used by your business - Closely monitoring accounts receivable for late payments - Providing motivation for customers to make prompt payments - Taking advantage of prompt payment discount only when it is cheaper than borrowing
The primary purpose of managerial accounting is to __________.
- Help managers perform the control function
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
Which of the following is one of the common financial statements?
- Income statement - Statement of comprehensive income - Statement of retained earnings - Statement of owners' equity - Balance sheet - Cash flow statement
___________ activities are the purchase and sale of land, buildings, equipment, and securities.
- Investing
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
Which of the following are sources of cash?
- Investment that a business has made, such as in stocks, bonds, and land - Through financing through debt or equity - Selling a business' products and services & collecting cash from customers
Financial accounting __________.
- Is a formal, rule-based set of accounting principles and procedures intended for use by outside owners, investors, banks, and regulators
Tax accounting __________.
- Is an accounting approach based on specific accounting requirements set by governmental agencies
Identify the true statements about the Modified Accelerated Cost Recovery System (MACRS).
- 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 statements is true of an account?
- It is a record of similar transactions
Which of the following is true of the bank available balance?
- It may differ significantly from the bank ledger balance
Which of the following statements about the business entity concept are correct?
- It underlies the legal forms of establishing businesses such as corporations, limited partnerships, and limited liability companies - It makes it possible to separate business and personal transactions - It is implicit in all business regulation
Owners' equity is simply whatever value is left after all ___________ have been paid.
- Liabilities
Which of the following statements about consignments are correct?
- Many industries like the salty snacks, used furniture, and sporting goods use consignments - They are the norm in operating art galleries - An advantage is that they do not have to be paid for until sold
______ consists of stocks and bonds that are traded on an open market.
- Marketable securities
Which of the following are cash flow problems faced by many small businesses?
- Money going out of the businesses is quite a lot - Money coming into the businesses is too little
Which of the following statements regarding currency are correct?
- More than half of U.S. currency is held outside the U.S. - Currency consists of both bills and coins - According to the Federal Reserve, there is $1.7 trillion in circulation as of January 31, 2019
The difference between the existing value of cash inflows and the existing value of cash outflows over a specified period of time is called __________.
- Net present value
Which of the following methodologies help reduce the trouble of selecting from among investment options?
- Net present value analysis - Differential revenues and expenses
A situation that occurs when a check is returned to a depositor because the writer of the check did not have a bank available balance equal to or greater than the amount of the check is called _____ or NSF.
- Non-sufficient funds
The term __________ refers to merchandise purchased or sold with payment due in the future, usually within one month.
- On account
Which of the following are true of cost-volume-profit analysis?
- One of its specific applications is break-even analysis - It is a way to plan operations that help achieve a certain profit goal
Which of the following statements regarding variance analysis are correct?
- One reason variances occur is because prices are different than previously estimated - Variances measure the effect of changes in prices and in the quantity used or produced - Another reason for a variance is due to a difference in quantity than estimated
Which of the following statements regarding trade discounts are correct?
- One should compare the annual effective interest rate of the discount to the cost of borrowing from other sources - The rule of thumb for a trade discount is 1% or greater if the billing period is less than 30 days - These discounts are given by suppliers and vendors to encourage customer to pay on time
Which of the following statements about cash flow statements are correct?
- 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
Which of the following statements regarding demand deposits are correct?
- Owners may withdraw money on demand by using a check, draft, currency, or electronic transfer - Demand deposits make up most of the non-currency cash - Checking and savings accounts are the two most common forms of demand deposits
Tammy is talented at crafts but lacks the cash flow management skills required to run a business. She opens a store, Tammy's Craft Corner, with the help of her son David—a business major—who would manage the budgets and expenses of the business. Tammy buys her craft materials on credit from her supplier but clears all her debts at the end of every month. The amount that Tammy owes her supplier is referred to as _____.
- Payables
Which of the following accounting functions ensures that the employment taxes are kept current?
- Payroll records
The accounts of assets, liabilities, and owners' equity, excluding accounts for revenues and expenses, are called __________.
- Permanent accounts
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 _____.
- Phony disbursements
Which of the following are the most common means by which employees steal cash from their employers?
- Phony disbursements - Skimming - Larceny and embezzlement
The final schedules completed to create a master budget are used to prepare a(n) __________.
- Pro forma projected balance sheet
The process of creating a set of interconnected budgets that combine into a master budget that can be used for assessing and controlling the business processes is called __________.
- Profit planning
The _____ depicts the number of units that are expected to be acquired during a budget period.
- Purchases budget
Amounts that are owed to a business for merchandise that was sold on credit are called ______.
- Receivables
An accounting process that identifies the causes of all difference between book and bank balances is known as ______.
- Reconciling
Investment records __________.
- Records if businesses keep surplus cash invested in securities
Maintaining an inventory helps a business to have an optimal level of cash flow by _____.
- Reducing the cost of processing orders
___________ is an increase in owners' equity caused by selling a product or service.
- Revenue
Which of the following statements about the income statement are correct?
- Revenues - Expenses = Net Income - It is the primary source of information about a business' profitability - The single-step and multiple step are two formats commonly used for creating an income statement
In which of the following ways can a firm owner collect receivables from customers?
- Setting up a billing system - Offering discounts for early payments
Accounts receivable __________.
- Shows records of credit given to customers
The purpose of an inventory budget is to __________.
- Simplify the budget process
Which of the following statements regarding variances are correct?
- Small variances should be ignored - A business owner should examine the variance to determine the significance between the budget and actual spending - An owner may be able to determine where the business is not meeting its goals by studying the variances report - Budgets will always have at least a small variance
A method for business forecasting and control in which specific expected volumes and prices per unit are used is called __________.
- Standard budgeting
While there are six common financial statements, most small businesses only use three of those six. Which of the following is not one of the financial statements commonly used by small businesses?
- Statement of owner's equity
Which of the following statements 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 of the following statements about budgeting are correct?
- The budget becomes the basis for controlling activities and the use of resources - The first step of budgeting is making a forecast of future sales - It is a quantitative expression of the use of resources necessary to achieve a business' strategic goals - It becomes a standard against which a business' performance can be measured
True or false: An often overlooked cause of cash shortages is a surplus of good news: Your business has proven to be wildly successful, and sales are growing at an exponential rate.
- True
True or false: Non-cash employee incentive is a strategy to decrease cash outflow.
- True
True or false: One of the difficulties in understanding and interpreting the income statements is the dispute over when one should recognize revenues.
- True
True or false: The cash-to-cash cycle is also referred to as the operating cycle.
- True
True or false: For many small businesses, the cash receipts budget is the same as the sales budget.
- True. These businesses don't give their customers credit, so they get payment when a business delivers the product or service
The process of determining the effect of price and quantity changes on revenues and expenses is known as ___________.
- Variance analysis