entr ch 12 pt 1

The rule of thumb for evaluating current ratio is that the minimum acceptable ratio is:

2.0.

Aaron, a businessman, has a method of keeping track of accounts receivable by sorting them into groups of those that are 30, 60, 90, and over 90 days past due. Which of the following actions will the collection agency which buys the delinquent account from Aaron do?

Collect the entire amount owed and keep all the money it obtains.

Identify the managerial accounting technique which 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

Expenses are the value given up to obtain something that the owner wants.

False

Financial accounting is forward-looking and attempts to predict the results of management decisions.

False

Formal summaries of the content of an accounting system's records of transactions are called financial instruments.

False

The accounting equation is simply stated as Assets = Liabilities - Owners' Equity.

False

Which of the following reconciles the net increase or decrease with the beginning cash balance and the ending cash balance?

Net change in cash balance

Which of the following is not one of the primary criteria for a small business's record keeping system?

The ability to outsource the task.

Which of the following is true of financial statements?

The overall content and form of financial statements have been made standard by long usage.

Which of the following is a difficulty that arises in understanding and interpreting the income statements?

There are disputes over when to recognize revenues.

One reason why accounting is important to a small business is that it shows how much your business is worth.

True

The primary reason to acquire and use a computerized accounting system in your business is to ensure the accuracy of your accounting information.

True

The usefulness of the income statement for managing a small business is related to the amount of detail available in the statement.

True

To ensure your accounting information is accurate, reliable, and useful, the accounting system you choose should easily and efficiently maintain an internal "audit trail".

True

Lenders use operating income as:

a measure of how much debt a business can support.