chapter 11

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

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

inventory budget

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

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

pro forma projected balance sheet

variable cost

product shipping raw materials sales commissions

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

The purpose of an inventory budget is to _____.

simplify the budget process

Variable costs are expenses

that change with each unit produced.

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

depreciation

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

external factors

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

False

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

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

budget

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

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

internal factors

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

variance

Fixed asset

Automatically calculates and adds depreciation

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 _____.

$100,000+$22,000=$122,000

basic accounting concepts

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

Identify the schedules that must be completed to create a master budget.

A cash budget A cash receipts budget

accounts receivable

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

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

Which of the following statements regarding variances are correct?

Budgets will always have at least a small variance. 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. Small variances should be ignored.

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

Current

following tasks should an accounting system easily and efficiently accomplish

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

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

budgeting

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. 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.

balance sheet

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

Modified Accelerated Cost Recovery System (MACRS)

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

current ratio

It is the most common ratio to estimate a business' liquidity. 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.

business entity concept

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

balance sheet

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.

the five primary criteria for a small business' recording-keeping system

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

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

Liquidity

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

Managerial

Which of the following methodologies help reduce the trouble of selecting from among investment options?

Net present value analysis Differential revenues and expenses

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

Operating

cash flow statements

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.

Investment records

Records if businesses keep surplus cash invested in securities

Accounts receivable

Shows records of credit given to customers

common financial statements

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

financially flexible

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

income statement

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

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

True

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

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

Variable

An expense is

a decrease in owners' equity caused by consuming a business' product or service.

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

accounting equation

Revenue is

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

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

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

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

accounts receivable

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

business entity

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

Inventory

Calculates appropriate stocking and reorder levels

Which of the following statements regarding variances are correct?

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. Small variances should be ignored. Budgets will always have at least a small variance.

the going concern concept

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

Operating activities are

activities involved in producing and selling goods and services.

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

accounting equation

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