Finance Ch.2

pay operating costs

A positive operating cash flow indicates that the firm is generating enough cash to ______.

stockholders' equity

A residual claim against the book value of the firm's assets. (The book value of the firm's assets less the book value of its liabilities.)

Differs from

Accounting profit ____ cash flow.

Equipment

Depreciation is the accountant's estimate of the cost of ______ used up in the production process.

IFRS

In recent years, U.S. accounting standards have become more closely tied to _____.

financial leverage

Increase the chance of financial distress and business failure. Greatly magnify both gains and losses. Increase the potential reward for investors.

Current assets

Inventory and A/R are

Raw materials used in production.

Is a variable cost in the short run?

assets to cash

Liquidity refers to the ease of changing _____.

Value

Most importantly, assets provide ______ to the firm.

after interest and taxes

Net income refers to money earned ______.

A long-term liability

debt that is not due in the coming year

plus depreciation

Net capital spending is equal to ending net fixed assets minus beginning net fixed assets ____.

Depreciation

Net capital spending is equal to the change in net fixed assets plus _____.

Book

On the balance sheet, assets are listed at their _____ value.

Its assets

Represents what a firm owns at a given point in time?

Expenses

The matching principle of GAAP requires revenues be matched with _____.

degree of financial leverage

The more debt a firm has, the greater its:

Flat

The passage of the Tax Cuts and Jobs Act of 2017 was to make the federal corporate tax rate in the United States a _____ tax.

Market

The price at which willing buyers and sellers would trade is called ____ value.

some costs are fixed output can vary

The short run for a firm is the period of time during which ______.

cash and equivalents

The statement of cash flow explains changes in _____.

cash flow from assets

The total of cash flow to creditors and cash flow to stockholders is called _____.

Liquidity

What is a primary concern for a bank lending funds to a business for the short term?

Variable

______ costs change as the output of the firm changes.

Liquidity

refers to the speed and ease with which an asset can be converted to cash.

statement of cash flows

An official accounting statement that helps to explain the change in cash and cash equivalents is called the

dividends paid - net new equity raised

Cash flow to stockholders equals ____.

operating cash flow

Cash generated from a firm's normal business activities is called _____.

Less Than

Changes in capital spending can be negative when the acquisition of fixed assets is ______ the sale of fixed assets.

Product

Costs include such things as raw materials, direct labor expense, and manufacturing overhead.

fixed commitments

Costs that do not change in the short run arise because of ______.

In the short run

Fixed costs are costs that will not change ______.

In order of decreasing liquidity

How are assets on a balance sheet listed?

Revenues - expenses

How is income defined?

Total tax bill / Total taxable income

How is the average income tax rate computed?

10%

If your tax bill is $200 and your taxable income is $2,000, then your average tax rate is _____ percent.

Variable

In the long run, all costs are _____.

Minus

Net working capital equals current assets ______ current liabilities.

21%

The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income.

GAAP (Generally Accepted Accounting Principles)

The common set of standards and procedures by which audited financial statements are prepared are called

Owners' Equity

The difference between the total assets and total liabilities is shareholders' or

both fixed and variable

The short run is a period when there are ______ costs.

Book value

Under GAAP, U.S. firms must carry assets at:

Accounts receivable

When a customer purchases an item on credit, the purchase amount is recorded by the seller in which one of these accounts?

What is the total amount of assets the firm owns? How much debt is used to finance the firm?

what questions can be answered by reviewing a firm's balance sheet?

Management salaries Property taxes Rent payments for a warehouse

Generally considered to be short-run fixed costs?

Assets

Generate revenue A firm owns Provide market value to the firm

net income; cash flow

Noncash items are expenses that directly affect _____ but do not directly affect ______.

Cash Flow

Noncash items do not affect _____.

Matching

The ___________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service.

Accounting

A balance sheet reflects a firm's ______ value on a particular date.

Accounts receivable

A customer has yet to pay the bill for products purchased on credit. The seller records this debt in which balance sheet account?

Accounts payable

A supplier may look at the size of _____ to see how promptly the firm pays its bills.

depreciation

A systematic expensing of an asset based on the asset's estimated life

Working capital

Another name for short-term financial management is ___ management.

working capital

Another name for short-term financial management is ___ management.

it is hard to keep up with the market value

Assets are recorded at historical cost, not market value, because _____.

not what the assets are actually worth

Book value of assets is generally:

Twelve

Current assets are defined as assets that can be turned into cash within ______ months.

Rent & Bond interest

Examples of short-run fixed costs?