BUSI105 Unit 4

What do the steps of the financial planning process include?

-Developing budgets to meet the firm's needs -Establishing financial controls -forecasting the firm's short-term and long-term needs

An acid-test ratio between ___ and 1.0 is usually considered Satisfactory but could also be a sign of some cash flow problems

0.5

What does the term "2/20, net 30" on an invoice mean?

2% discount if paid in 10 days, full amount due in 30 days

What is a promise to the bank to pay some specified amount at a particular time with no conditions?

A bankers acceptance

Correct statements about pledging include:

A firms accounts receivable are used as a basis for a loan AND the firm gets a percentage of the pledged accounts receivable as a loan

What does the income statement show?

A firms profit after costs, expenses, and taxes

What was a major problem during the great depression created by weak banking system?

A run on and closure of many banks

What is a certificate of deposit also known as?

A time deposit (savings)

The ____ ____ Report a firm's financial condition on a specific date, whereas the ____ ____ summarizes revenues, costs, and expenses for a specific period

Balance sheet/ income statement

What is a promise to pay a certain amount at a certain time with no conditions?

Bankers acceptance

What can exchange currency from one country into another currency?

Banks

What does the advisory councils the Federal Reserve include?

Banks and consumers

Why is it better to go to banks instead of family and friends for business loans?

Banks can assist the business analyzing problems and loans from family can hurt family relationships

An accountant who installs financial software for a beauty shop to earn "trade credits", which the accountant uses to have painters paint her house is an example of a(n) _______ exchange .

Barter

Examples of profitability ratios include:

Basic earnings per share, return on equity, return on sales

In order to be a certified management accountant a person must:

Be certified by the Institute of certified management accountants, pass a qualifying exam, with the educational requirement

A(n) ______ is like an IOU with a promise to repay The amount borrowed, with interest, on a certain date.

Bond

Leverage or debt ratios measure the degree to which a firm relies on:

Borrowed funds

What do commercial banks offer loans and other services to?

Both individuals and corporations

The banking crisis was created by failures in:

Both private and government sectors

What are no -bank entities that influence the financial economy as much as banks do?

Brokerage firms, life insurance companies, and pension funds

Which of the following are services provided by non-banks?

Brokerage services, sell insurance, investment services

When a company allocates the use of specific resources throughout the firm based on a financial plan indicating managements expectations, then the company is using a(n) ________ as the basis for making decisions.

Budget

Capital, cash, and operating are three types of:

Budgets

What do common financial transactions include?

Buying and selling goods, acquiring insurance, paying employees

If an individual passes a rigorous examination established by the AICPA and meets a state educational and experience requirements, they can be recognized as a(n)?

CPA

What kind of expenditures are considered major investments in long-term assets?

Capital

What kind of budget summarize a firm spending plans for major asset purchases that often require large sums of money?

Capital budget

What kind of budget estimates cash inflows and outflows during a period of time?

Cash budget

It's possible for a business to increase its sales and profits get still suffer ____ ____ problems.

Cash flow

What are determinants of how much money a firm should borrow?

Cash flow forecast, speed with which day to turn the borrowed funds into cash, and seasonal environment of the business

What do duties of a financial manager include?

Cash management, budgeting, and obtaining funds

On the statement of cash flow's activities from operations include:

Cash transactions associated with running the business

Top US retail banks allow customers to access their accounts online so they can:

Check account balances, transfer funds, and pay bills

A demand deposit is the technical name for a(n) ______ account since it's a means of paying for almost any purchase or transaction.

Checking

The Federal Reserve banks serve as the national _____ for checks

Clearinghouses

What is a factor in setting a long-term interest rate?

Collateral, the firm's credit rating, and market interest rates

Organizations that are becoming more involved in lending include:

Commercial credit companies AND brokerage firms

What companies are firms that make short term secured loans with higher interest rates than banks?

Commercial finance

What is the term used for unsecured notes of $100,000 and up that are doing no more than 270 days?

Commercial paper

A non-deposit institution that will make short term loans to borrowers who offer tangible assets as collateral are called _____ finance companies which are different from ______ which except deposits.

Commercial, banks

What are the key functions of financial management?

Controlling funds, collecting funds, and managing taxes

Where can the International Monetary Fund (IMF) and World Bank provide loans to?

Countries

The international Monetary Fund (IMF) was established to:

Create stable exchange systems and cooperative monetary policies

A smart card is in electronic funds transfer tool that can serve as a(n):

Credit card, debit card, driver's license

What was one technological solution to reduce paper?

Credit cards

What is a nonprofit member owned financial cooperative that offers the full variety of banking services to their members?

Credit union

What are major services that banks provide to international business?

Currency exchange, bankers acceptance, and letters of credit

What is the meaning of accounts payable?

Current liabilities involving money owed to other, but not yet paid for

What is the process in which a firm periodically compares its actual revenues, costs, and expenses with its budget?

Financial control

Financial management primarily involves managing a firm's:

Financial resources

What is the most favored source of meeting long-term capital needs?

Retained earnings

And indirect measure of risk that tells how much a firm earn for each dollar invested by its owners is called?

Return on equity

Accounting is the recording, classifying, summarizing, and _______ of financial events and transactions.

Interpreting

Careful control of _____ costs allow firm to maintain correct levels of stock and product.

Inventory

On the statement of cash flow's, when a company buys or sells a long-term asset it is called a(n):

Investment

The Federal Reserve's Open Market Committee:

Is a policy making body AND is composed of the Board of Governors and members of the Reserve banks

Where is the commercial paper is different from bank loans include:

Is unsecured, carries a lower interest rate and commercial bank loans, and is sold to investors, not banks

What statements are correct about banking?

Issues around the world can you find spanking on the local level AND banking is now a global industry

How can excepting credit cards be useful for small businesses?

It provides the business payment more quickly and provide ease of payment for customers

What is true about commercial paper?

It values of $100,000 and up, it matures in 270 days or less, and it is unsecured promissory notes

What are assets?

Items of value owned by a firm

A certified management accountant (CMA) must meet the _____ and _____ requirements of the Institute of certified management accounts

Knowledge and experience

What is an indirect measure of risk that tells us how much a firm earned for each dollar invested by its owners?

Return on equity

What are the three profitability performance ratios?

Return on equity, return on sales, earnings per share

How much money a firm will borrow often depends on how long it takes to convert inventory into:

Revenue

What is the term for resources that come into the firm from operating activities?

Revenue

What were the first banks created in the early days of America to aid farmers called?

Land banks

What are examples of capital expenditures?

Land, patents and copyrights, buildings and equipment

Who are the primary users of government in non-for profit accounting information?

Legislative bodies, special interest groups, taxpayers

What is a promise in international banking, by a bank to pay the seller and give an amount if certain conditions are met?

Letter of credit

What type of ratios measure the degree to which the firm relies on borrowed funds in its operations?

Leverage

What is another name for debts?

Liabilities

What are unsecured short term funds A bank will lend to a business, provided the funds are readily available, is called a(n):

Line of credit

What are unsecured, short-term funds a bank will lend to a business, provided the funds are readily available is called a what?

Line of credit

What ratios measure a company's ability to turn assets into cash to pay a short term debt?

Liquidity

What's forecast look at all major inflows and outflows of the firm for a period of more than one year?

Long-term forecasts

What is the money supply term that refers to money that can be accessed quickly and easily?

M-1

What does the cost of goods sold measure?

The cost of merchandise the firm sells or the materials and supplies used to manufacture them for sale

What is the interest rate the Fed charges for loans to member banks?

The discount rate

What is the money supply term that includes accounts that can be assessed quickly and easily and most savings accounts, mutual funds, and certificates of deposit?

M-2

Financial manager take the data and reports prepared by accountant and:

Make recommendations on approving the financial performance of the firm

What kind of accounting or managers inside the organization most likely to use?

Managerial

______ accounting deals with information within the firm, whereas ______ accounting provide information outside the firm

Managerial/financial

What do you key functions of financial management include?

Managing taxes, collecting funds, auditing

Economic growth and the creation of jobs depend on the ready availability of ______

Money

The ready availability of ______ is critical to the creation of economic growth and jobs.

Money

What do people generally except as payment for goods and services?

Money

What would be considered an example of the M-2?

Money market account, savings accounts, and certificates of deposit

One of the main reasons for the banking crisis with that banks made questionable loans and resold them as:

Mortgage backed securities

What is the reason a firm is cautious about extending credit?

Much of a firms total assets can be tied up in accounts receivable

Debt financing refers to funds that:

Must be repaid

What defines the generally excepted accounting principles?

The financial accounting standards board (FASB)

What most lenders and stockholders be satisfied by?

The firms cost of capital

What does the risk/return trade-off principle mean?

The greater the risk for a lender making a loan, the higher the interest rate

What is the discount rate?

The interest rate that the federal reserve charges member banks

Which ratio is the cost of goods sold divided by the average inventory?

The inventory turnover ratio

The "bottom line" is:

The last line on the income statement and the net income or loss after taxes

What is revenue?

The monetary value of what a firm received for goods sold, interest earned, and services rendered

What is the amount of money the Federal Reserve makes available for people to buy goods and services?

The money supply

What is a percentage of commercial banks checking and savings account that must be kept in the bank?

The reserve apartment

What is one of the most important tools at the Federal Reserve uses to control the money supply?

The reserve requirement

What is auditing?

The reviewing and evaluating of records used to prepare a company's financial statements

Stockholders, or owners equity represents:

The value of the business that belongs to the owners

Who is responsible for financing international economic development and is sometimes called the International Bank for reconstruction and development?

The world bank

Why is money (currency) important to a working economy?

There must be an easily understood and readily available way to have non-barter transactions

What has played major parts in the debate on the US economy throughout history?

National banks and gold as national currency

What are some uses of long-term funds?

New product development, capital equipment, new facilities

What is an advantage of using retained earnings for financing?

No additional owners due to stock sale

What are financial organizations that except no deposits per offer many of the same services as regular banks?

Non-banks

What is the difference between banks and similar non-bank entities?

Non-banks cannot accept deposits

A payroll debt card serves as a way to pay employees who are:

Not apart of the banking system

A liability that can be short term or long term that a business promises to repay a certain date is called___?

Notes payable

What was Arthur Andersen convicted of?

Obstruction of justice

Allowing banks and non-banks to offer similar services has:

Offered more banking services through one provider AND given the consumer a greater variety of services

What can electronic cash be described as?

One of the newest forms of money, something that allows for direct deposits, and something that allows you to make online payments

A long-term forecast's time period is generally more than then:

One year

What does the M-3 include?

Only M-2 and institutional money market funds

Depreciation is considered a type of:

Operating expense

What funds are typically needed to manage day-to-day needs of a business as well as acquiring needed inventory?

Operational

Equity financing includes money raised from:

Operations and within the firm

What funds or money put aside by corporations and others for the retirement of their employees?

Pension

What are the key activities of finance?

Planning for major expenditures of funds, comparing budgets, and performing cash flow analysis

What are common reasons firms fail financially?

Poor control over cash flow, under capitalization, and inadequate expense control

Is it more common for a firm to fail due to lack of sales or poor financial management?

Poor financial management

During the recent financial collapse, financial managers failed to do their job effectively because of:

Poor investment decisions and risky financial decisions

Among the five standards for useful form of money are:

Portability, stability, and divisibility

What is managerial accounting concerned with?

Preparing budgets, controlling, measuring production costs

What is managerial accounting concerned with?

Preparing budgets, measuring production cost, and controlling

The money supply is controlled by the Federal Reserve in order to better manage the ______ of goods and services.

Price

A ____ accountant works for a single farmer agency and performs accounting functions for use in making decisions within that firm or agency

Private

What are the main types of financial ratios used in ratio analysis

Profitability ratios, activity ratios, debt ratio, liquidity ratios

Retained earnings are the:

Profits the company keeps

What is the promise to pay person or firm a certain amount at a specified time?

Promissory note

When conducting an independent audit, the accountant is to evaluate a company's financial statements and:

Provide an unbiased opinion about their accuracy

What are advantages of using a credit card and small business financing?

Provides a line of credit, saves time, end it is convenient

What is the formula for the cost of goods sold?

Purchase price + freight charges + Storage costs

What are ways modern banking practices have made the banking system less secure?

RFID tags, for security of electronic data, putting more information in cyberspace

Cost of capital is _____ of _____ a company must earn in order to meet the demands of its lenders and expectations of its equity holders.

Rate of return

What are items that me back a secured bond?

Real estate, machinery, and equipment

Which of the following are considered to be a part of accounting?

Recording, classifying, and interpreting financial transactions

Banks that contributed to the real estate collapse often did not look at the customers ability to _____ loans.

Repay

What are some facts about the Federal Reserve Board of Governors?

They administer and supervise the 12 Federal Reserve banks, their primary function is to set monetary policy, and the seven members are appointed by the president and confirmed by the Senate

What are facts about credit unions?

They are tax season organizations, they are nonprofit organizations, and they are member owned

What is true about venture capitalists?

They invest in businesses with high potential and they have assisted many major companies during start up

Which of the following about commercial finance companies are true?

They make short term loans, they want borrowers to offer tangible assets as collateral, and they charge higher rates than banks

Why must financial managers understand tax regulations?

They must consider the tax implications of major decisions AND businesses want to minimize taxes

What must a certified public accountant do?

They must pass a series of exams, must meet the states requirement for educational dm experience, and must follow GAAP in the United States

What is the idea that money in your possession today is worth more than money that will be in your possession in the future?

Time value

Technology allows a consumer:

To find the best loan deal quickly and easily AND to have funds available with the use of ATMs

What was the purpose of the Sarbanes-Oxley Act?

To provide greater scrutiny of accounting industry

A firm that buys goods and services on a given day but pays for them later is using a:

Trade credit

What is the minimum years of experience an accountant must have internal auditing to become a certified internal auditor?

Two

In which industries is factorimg common?

US industries in global trade ventures

Among the five standards for a useful form of money are:

Uniqueness and durability

Is a line of credit loan secured or unsecured?

Unsecured

A debenture bond that is only backed by the reputation of the issuer is called a:

Unsecured bond

What is a loan that does not require collateral?

Unsecured loan

What is money invested in new were merging companies that investors believe have a great profit potential?

Venture capital

Investing in a new business with high profit potential is done by who?

Venture capitalists

Well diluted earnings per share measures profit per share of outstanding common stock it also takes into consideration:

Warrants, stock options, preferred stock, convertible debt securities

What is the dinosaur of the banking industry?

Written checks

Short term forecasts generally cover up to a

Year

What are disadvantages of bartering?

Your items of value may have a limited life AND you have to carry around goods that are hard to transport

A(n) _____ _____ reports the firm's financial condition a specific date.

balance sheet

What term describes the cost of merchandise the firm sells?

cost of goods sold

When a firm sells its accounts receivable at a discount in return for cash, the firm is:

factoring

Accounting provides ___ statements that are critical to understanding the health of a business

financial

Accounting reports and _____ _____ are critical to understanding the health of a business

financial statements

Buying and selling goods and services, acquiring insurance, paying employees, and using supplies are all examples of:

financial transactions

Net ___ is the sum of resources left over when revenue is greater than cost and expenses, whereas net ______ occurs when revenue is less than cost and expenses.

income/ loss

The major activities of a firm shown on the statement of cash flows include?

investments, operations, financing

A tax accountant has specialized and learned tax _______ and is responsible for preparing tax returns.

law

The major categories on the balance sheet include which of the following?

liabilities, assets, owners equity

What is the meaning of bonds payable?

long-term liabilities that represent money lent to the firm that must be paid back

Commercial finance companies take ______ risks than banks and in charge _____ interest rates.

more, higher

What is gross profit?

net sales - cost of goods sold

The statement of cash flows reports cash receipts and disbursements related to investments, financing, and _____

operations

What are examples of intangible assets?

patents, copyrights, trademarks, goodwill

Which of the following are inputs to the accounting system?

sales documents, shipping documents

Why have banks non-banks becomes so similar?

The competition between them has increased

What is the fundamental accounting equation?

Assets= liabilities + owners equity

The key working areas of accounting include managerial accounting, financial accounting, tax accounting, government and non-for profit accounting, and ______?

Auditing

A feature of _____ financing is that stock has no maturity date and common stockholders have voting rights

Equity

With regard to tax considerations and financing, the fact that dividends are paid from after-tax income is a sign of _____ financing.

Equity

A firm that does not want to pay back a loan will use ______ financing, rally firm that does not want to give up ownership will use _____ financing.

Equity, debt

What was the original purpose of the savings and loan association?

Except deposits and provide mortgage loans

What independent agency of the US government insures bank deposits?

FDIC

What is the abbreviation for the independent agency of the United States insurance bank deposits?

FDIC

If financial institution or commercial bank that purchases a business accounts receivable at a discount and then keeps what they collect is a(n):

Factor

Which type of dollar value means that the amount of goods and services you can buy with a dollar decreases?

Falling

What is considered to be a part of the federal reserve?

Federal Open Market Committee and the board of governors

What is the organization that has the most power over the currency in the United States?

Federal Reserve

"Lender of last resort" is a name given to the ______ ______ _____ because it was created to assist other banks within the United States.

Federal Reserve System

As nonprofit institutions, credit unions enjoy an exemption from:

Federal income taxes

To meet a firm's goals and objectives, ________ managers must focus on the management of a firm's resources

Financial

Which of the following are considered disciplines within the accounting profession?

Financial accounting, tax accounting, managerial accounting

A current ratio of 2 means that the business has $2 of current assets for every:

$1 of current liabilities

A major purpose of ____ is to help managers evaluate the financial condition in the operating performances of the firm.

Accounting

The method a company uses to record and summarize accounting data into reports is a(n)?

Accounting system

What are some examples of current assets?

Accounts receivable and inventory

What are retained earnings?

Accumulated earnings not paid out to stockholders

Needs for operating funds include:

Acquiring needed inventory, making capital expenditures, and controlling credit operations

What are the ratios that measure the effectiveness of a firms management and using the assets that are available?

Activity ratios

Which of the following is part of the Federal Reserve?

Advisory Council's

What is a cash flow forecast concerned with?

All cash inflows and outflows

What is net income?

All revenue minus expenses and taxes

What does the income statement summarize?

All the revenue from operating activities, money resources used up, expenses, and resources left after all costs and expenses

What is another name for an electronic check?

Debit card

What are ways to send transactions directly from one computer to another instead of using a paper check?

Debit cards and electronic funds transfer

With regard to repayment in financing, concern for maturity date of obligations is a sign of _______ financing.

Debt

With regard to tax considerations in financing, the fact that interest is tax-deductible as a sign of ____ financing.

Debt

With regard to tax considerations and financing, the fact that interest rate is tax-deductible as a sign of:

Debt financing

When the Federal Reserve want to encourage economic activity, it will _______ the discount rate.

Decrease

When the Federal Reserve wants to encourage economic activity, will it increase or decrease discount rate?

Decrease

Earnings per share can either be basic earnings per share or _____ earnings per share.

Diluted

What is a credit added to the bank account electronically in place of a check that reduces the cost of processing a paper check?

Direct deposit

A debit card is a(n) _____ check that withdraws money from a checking account

Electronic

What systems send transactions directly from one computer to another?

Electronic Funds Transfer

When a company put aside pension funds they are providing monies for:

Employee retirement

What do functions of financial management not include?

Ensuring employees are paid fairly

Of the three major financial activities of a firm, _____ is cash raised from the issuance of new debt or equity capital.

Financing

What are factors in setting a long-term interest rate?

Firms credit rating, collateral, and market interest rates

Which types of assets are land, buildings, and equipment?

Fixed assets

What are types of organizations that can issue bonds?

Foreign, federal, state, and local governments

A firm's _____ must be made available in the correct amount in time in order to fulfill its needs and obligations, such as payroll loan payments.

Funds

Finance is the function of acquiring a management of:

Funds

What does debt financing refer to?

Funds that must be repaid

The principles, defined by FASB, that accountants must follow to assure that a. firm's accounting information is accurate are abbreviated as?

GAAP

What do you operating expenses include?

General expenses and selling expenses

When considering long-term financing options, a financial manager must consider the organizations financial _______ and _______.

Goals and objectives

Revenue is the monetary value of what a firm received for:

Good sold, interest earned, services rendered

Open market operations consist of the buying and selling of:

Government bonds

Why is a financial plan important to business?

Greatly increases the firms chance of success

Short-term funds are needed for less then a____

Here

What do profitability ratios measure?

How effectively a firm is using its various resources to achieve profits

What does liquidity refer to?

How fast an asset can be converted into cash

Basic earnings per share is the ratio of net ____ after taxes to the number of common stock shares outstanding.

Income

Why would a firm leverage?

Increase of funds rate of return on ownerships investment

The competition between banks and non-banks has ______ with the dividing line between them becoming less apparent

Increased

When a firm decides on a bond term, interest, and repayment date, the ______ is being prepared.

Indenture

What are the terms of the bond such as interest and repayment date called?

Indenture items

What function of the Federal Reserve enables banks to settle demand deposits between member banks?

The check clearing function

What is net income or loss the difference between?

Revenues and expenses

What is a guaranteed line of credit that comes with the fee and is preapproved by a bank?

Revolving credit agreement

What is the difference between a line of credit and revolving credit agreement?

Revolving credit agreement is guaranteed

What is a time deposit's formal name?

Savings account

What is a firm the issues a bond back by assets that may be claimed upon default?

Secured

What kind of bond is one that is backed by assets which may be claimed if the bonds interest is not paid?

Secured bond

When a firm issues a bond backed by assets that may be claimed upon default, it has issued a:

Secured bond

What is a loan back by collateral, (something valuable like property) called?

Secured loan

What statements are correct about loans?

Secured loans are backed by collateral and unsecured loans are only for the very stable customers

What are major duties of the Federal Reserve?

Setting reserve requirements, buying and selling government securities, and collecting data on money supply

A public corporation, the ownership is held by:

Shareholders

What funds are small business manager is more concerned with?

Short term funds

What is a device that can take the place of a credit card, debit card, drivers license, and other personal information?

Smart card

A company that uses a capital account for owners equity is organized as a _____ ____ or a partnership.

Sole proprietorship

What should be included in every loan agreement?

Specific loan terms, have the agreement in writing, and arrangements for repayment

Which of the following provides a summary of money coming into and going out of the firm the tracks the company's cash receipts and payments?

Statement of cash flows

What did the Sarbanes-Oxley Act do?

Strengthen dthe protection of whistleblowers, required CEOs to certify the accuracy of financial reports, and prohibited accounting firms from providing consulting services to companies they audit

On a balance sheet, assets may include:

Tangible and intangible resources

Government and non-for profit accounting involves working for organizations whose purpose is to serve ______.

Tax payers and ratepayers

What agreement is a promissory note that requires the borrower to repay the loan with interest in specified monthly or annual installments?

Term-loan agreement

On the statement of cash flow's financing activities would include:

Thank dividends, paying past debt, taking on new debt

What is the correct statement about banks and their customers?

Thanks for equally responsible to their depositors and borrowers

To issue a stock a public corporation must meet requirements of:

The SEC AND various state agencies

Which legislation prohibits accounting firms from providing consulting services to companies they audit?

The Sarbanes-Oxley Act

What is the fundamental accounting equation basis for?

The balance sheet

What is a nickname for the Federal Reserve?

The banker's bank

The TARP program was designed to "bail out":

The banking industry

What were the effects of a lack of a banking system in early America?

The barter system was common place, local governments ultimate issue currency, and land banks were created

What is another name for net income after taxes?

The bottom line

What do open market operations consist of?

The buying and selling of government bonds