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
