Accounting Flashcards
Which calculation determines a firm’s return on equity?
-Average equity divided by net income
-Net income divided by average equity
-Shareholder’s equity divided by gross profit
-Gross profit divided by shareholder’s equity
Net income divided by average equity
Why should companies that are conservative investors with liquidity concerns invest their excess cash in money market funds?
-It earns the highest rate of interest.
-It is considered to be cash assets.
-It requires the lowest minimum investment.
-It converts easily into cash.
-It converts easily into cash.
Which regulatory relationship within the Securities and Exchange Commission (SEC) historically has acted to prohibit the U.S. from adopting the International Financial Reporting Standards (IFRS)?
-The IFRS is too detailed in regards to revenue recognition
-The IFRS requires companies to use “last in, first out” (LIFO).
-U.S. firms are prohibited from using any form of the IFRS
-FASB requires companies to comply with GAAP that differ from IFRS
FASB requires companies to comply with GAAP that differ from IFRS
Which users of financial statements use the financial statements to evaluate the operations of the firm and to make investment decisions?
Owners and creditors
Employees and union officials
Management
Independent accountants
Owners and creditors
The _____ was created by the Sarbanes-Oxley Act of 2002.
A) Federal Reserve Board
B) Public Accounting Oversight Board
C) Securities Exchange Commission
D) Financial Accounting Standards Board
B) Public Accounting Oversight Board ✅
Which of the following financial statements shows a company’s financial position on a particular date?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of stockholders’ equity
B) Balance sheet ✅
Expenses that have been incurred (such as wages) but have yet to be paid are reported on the balance sheet as _____.
A) Deferred income
B) Accruals
C) Current liabilities
D) Prepaid expenses
Accruals
What are some examples of non-cash expenses?
A) Operating costs
B) Income taxes
C) Cost of goods sold
D) Depreciation
Depreciation ✅
Which of the following current assets is NOT included when calculating the acid-test ratio?
A) Accounts receivable
B) Inventory
C) Cash
D) Marketable securities
Inventory
If a firm has a current ratio of 2.5, it means that for every $2.50 in _____ it has $1.00 in _____.
A) Current liabilities; current assets
B) Current assets; current liabilities
C) Long-term assets; long-term liabilities
D) Sales; operating costs
Current assets; current liabilities
_____ ratios are designed to evaluate a firm’s ability to generate revenues in excess of operating costs and other expenses.
A) Profitability
B) Liquidity
C) Efficiency
D) Leverage
A) Profitability ✅
Which of the following are profitability ratios:
A) Gross profit margin
B) Return on equity
C) Net profit margin
D) All of the above
All of the above ✅
What was established in 1973 to promote worldwide consistency in financial reporting practices?
A) The International Accounting Standards Committee (IASC)
B) The Financial Accounting Standards Board (FASB)
C) The Sarbanes-Oxley Act
D) The Generally Accepted Accounting Principles (GAAP)
The International Accounting Standards Committee (IASC) ✅
In a typical firm, the _____ is the chief accounting manager.
A) Treasurer
B) Controller
C) Auditor
D) Financial analyst
Controller ✅
A _____ is a document that specifies the funds a company will need for a period of time, the timing of inflows and outflows, and the most appropriate sources and uses of funds.
A) Financial report
B) Balance sheet
C) Financial plan
D) Income statement
Financial plan
The following actions result in equity capital:
A) Liquidating assets
B) Taking out a loan
C) Issuing bonds
D) Leasing equipment
Liquidating assets
Kevin’s company needs funds but does not want stockholders influencing the company. What type of financing should he acquire?
A) Equity capital
B) Debt capital
C) Venture capital
D) Crowdfunding
Debt capital
All of the following are sources of short-term funds EXCEPT:
A) Commercial paper
B) Trade credit
C) Bank loans
D) Long-term bonds
Long Term bonds
_____ calculates the difference in revenue of a retailer’s existing supplies over a certain period compared to the same period in a prior year.
A) Net profit margin
B) Gross sales
C) Same-store sales
D) Operating expenses
Same-store sales
Commercial paper is an attractive short-term financing option because of its _____.
A) Maturity period
B) High-interest rates
C) Government backing
D) Long repayment terms
Maturity period
What is true of trade credit?
A) It has a fixed interest rate
B) It is free of cost if suppliers do not offer a cash discount
C) It requires immediate payment
D) It is only available to large corporations
It is free of cost if suppliers do not offer a cash discount
A balance sheet hedge provides a method for global companies to reduce risks associated with exchange rate fluctuations.
A) False
B) True
True
Bridgette, a chief executive officer, reviews the internal performance of her company’s stock, as well as market trends for the industry. To access this information, Bridgette uses a(n) ________.
A) Decision support system
B) Knowledge work system
C) Executive support system
D) Transaction processing system
Executive support system
Who appoints the members of the Public Company Accounting Oversight Board?
A) The President of the United States
B) The Securities and Exchange Commission
C) The Federal Reserve
D) The Internal Revenue Service
The Securities and Exchange Commission ✅
The procedure used by accountants to convert data about individual transactions to financial statements is called _____.
A) The financial process
B) The accounting cycle
C) The revenue recognition principle
D) The matching principle
The accounting cycle
Which of the following assets would a firm most likely finance using long-term sources?
A) Office supplies
B) Employee salaries
C) Another company
D) Short-term inventory
Another company
Return on Equity (ROE) is calculated as:
A) Net Income / Average Stockholders’ Equity
B) Total Revenue / Total Assets
C) Gross Profit / Total Liabilities
D) Operating Expenses / Total Sales
Net Income / Average Stockholders’ Equity
The Dodd-Frank Wall Street Reform and Consumer Protection Act aims to:
A) Strengthen financial stability and transparency while protecting consumers
B) Lower corporate tax rates for financial institutions
C) Increase government control over private companies
D) Deregulate financial markets to promote economic growth
Strengthen financial stability and transparency while protecting consumers
Which two risks does a firm face by funding the purchase of long-term assets with short-term funding sources?
A) Inventory shortages and supplier delays
B) Depreciation and loss of equity
C) Increased tax obligations and legal fees
D) Volatility of interest rates and frequent renewals
Volatility of interest rates and frequent renewals
In which type of security should a business invest its excess cash in anticipation of paying off the current year’s tax liability?
A) Government bonds
B) Real estate investment trusts (REITs)
C) Commercial paper
D) Long-term equities
Commercial paper
Which role does the underwriter play in financing business operations when using the capital market to sell securities to the public?
A) It assists companies in reducing expenses
B) It assumes the risk of the assessed value of the security from the issuer
C) It directly issues loans to small businesses
D) It acts as an independent auditor for financial reporting
It assumes the risk of the assessed value of the security from the issuer
Which financial statement should an investor examine to identify the liabilities of a firm?
A) The income statement
B) The balance sheet
C) The statement of retained earnings
D) The statement of cash flows
The balance sheet
A company wishes to determine if it should fund a project with bonds or equity. Which business concept would it most likely use to assist in the decision?
A) Liquidity
B) Leverage
C) Market segmentation
D) Depreciation
Leverage
Which financial statement includes sales, cost of sales, gross profit, expenses, and profit?
A) Balance sheet
B) Income statement
C) Statement of retained earnings
D) Statement of cash flows
Income statement
The balance sheet includes:
A) Only short-term assets and liabilities
B) Current assets, long-term assets, current liabilities, long-term liabilities, and stockholders’ equity
C) Net profit and retained earnings only
D) All revenue and expense transactions of a company
Current assets, long-term assets, current liabilities, long-term liabilities, and stockholders’ equity
The statement of cash flows includes which three activities?
A) Operating, investing, financing
B) Income, expense, taxation
C) Short-term, long-term, equity
D) Production, marketing, sales
Operating, investing, financing
The Statement of Owner’s Equity summarizes:
A) The company’s short-term investment strategy
B) The company’s expenses and liabilities
C) The profit margin for the past five years
D) The changes in owner’s equity during a specific period, such as a month or a year
The changes in owner’s equity during a specific period, such as a month or a year
A Statement of Owner’s Equity includes:
A) Beginning balance, profits added to retained earnings, dividends subtracted from retained earnings, equity sold, and ending balance
B) Revenue sources, tax deductions, and depreciation
C) Only the net income after taxes
D) Fixed and variable costs
Beginning balance, profits added to retained earnings, dividends subtracted from retained earnings, equity sold, and ending balance
Which two risks does a firm face by funding the purchase of long-term assets with short-term funding sources? (Select Two)
A) Volatility of interest rates
B) Permanent loss of equity
C) Frequent renewals
D) Increased asset depreciation
Volatility of interest rates & Frequent renewals
Which funding source should a firm use if it wishes to secure long-term financing while retaining all of its equity?
A) Corporate bond
B) Common stock issuance
C) Private equity fund
D) Bank loan
C) Private equity fund
Which three characteristics make commercial paper a low-risk, attractive source of short-term funding for a business? (Select Three)
A) It has a maturity that ranges between 1 and 270 days
B) It requires collateral backing
C) It can make large amounts of money available
D) It carries interest rates that are 1 to 2 percent less than bank loans
-It has a maturity that ranges between 1 and 270 days
-It carries interest rates that are 1 to 2 percent less than bank loans
-It can make large amounts of money available
Which calculation determines a firm’s return on equity?
A) Net income divided by total liabilities
B) Net income divided by average equity
C) Total revenue divided by total assets
D) Operating income divided by shareholder contributions
B) Net income divided by average equity
Which regulatory relationship with the Securities and Exchange Commission (SEC) historically has acted to prohibit the U.S. from adopting the International Financial Reporting Standards (IFRS)?
A) SEC mandates that firms report in IFRS
B) The Sarbanes-Oxley Act prohibits IFRS adoption
C) FASB requires companies to comply with GAAP that differ from IFRS
D) The SEC has no influence on accounting standards
C) FASB requires companies to comply with GAAP that differ from IFRS
Which accounting method helps a firm reduce the disparity in exchange rates?
A) Income smoothing
B) Hedging through futures contracts
C) Balance sheet hedge
D) Profit conversion accounting
Balance sheet hedge
Select a reason debt capital is cheaper than equity capital.
A) Investors demand higher returns than creditors
B) Debt financing improves shareholder control
C) Creditors will accept a lower rate of return than investors
D) Debt eliminates financial risk
Creditors will accept a lower rate of return than investors
If a firm has more equity capital than debt capital, will shareholders have more or less control?
A) More
B) Less
More
Which of the following is not short-term financing?
A) Trade credit
B) Commercial paper
C) Three-year fixed interest loan
D) Line of credit
Three-year fixed interest loan
Money market instruments, bonds, and stocks are types of what?
A) Securities
B) Liabilities
C) Commodities
D) Assets
Securities
Which of the following are debt securities?
A) Mutual funds and ETFs
B) Stocks and derivatives
C) Bonds and money market instruments
D) Treasury shares and dividends
Bonds and money market instruments
Which type of stock is the basic ownership of a firm?
A) Common
B) Preferred
C) Treasury
D) Convertible
Common
The benefit of this stock is the first claim to assets if the firm dissolves.
A) Common
B) Preferred
C) Convertible
D) Restricted
Preferred
What is fixed for preferred stockholders?
A) Dividends
B) Voting rights
C) Equity value
D) Market price
Dividends
Which financial statement provides managers a picture of cash needed for day-to-day operations?
A) Balance sheet
B) Income statement
C) Statement of cash flows
D) Statement of owner’s equity
Statement of cash flows
Which financial statement is a permanent statement?
A) Statement of cash flows
B) Income statement
C) Balance sheet
D) Statement of owner’s equity
Balance sheet
Which two financial statements would be reviewed by potential buyers? (Select Two)
A) Income statement
B) Statement of owner’s equity
C) Statement of cash flows
D) Balance sheet
Balance sheet & Statement of owner’s equity
Depreciation is a non-cash expense on which financial statement?
A) Balance sheet
B) Income statement
C) Statement of cash flows
D) Statement of owner’s equity
Statement of cash flows
Which liquidity ratio is considered satisfactory?
A) 1:1
B) 2:1
C) 3:1
D) 4:1
2:1
Which quick ratio is considered adequate liquidity?
A) 1:1
B) 2:1
C) 3:1
D) 0.5:1
1:1
What does a calculated liquidity ratio of 2.5 indicate?
A) $2.50 in assets for every $1.00 in liability
B) $1.50 in liabilities for every $1.00 in assets
C) $2.50 in revenue for every $1.00 in profit
D) $2.50 in debt for every $1.00 in equity
$2.50 in assets for every $1.00 in liability
Which indicates better performance in inventory turnover?
A) A constant inventory turnover ratio
B) Low inventory turnover ratio
C) Inventory turnover has no impact on performance
D) High inventory turnover ratio
High inventory turnover ratio
Why do we avoid an over-reliance on borrowing?
A) To increase expenses
B) To decrease asset value
C) To gain leverage
D) To reduce profitability
To gain leverage
How often do firms prepare a cash budget?
A) Annually
B) Quarterly
C) Monthly
D) Biweekly
Monthly
What does the income statement examine?
A) Assets and liabilities
B) Cash flow and liquidity
C) Shareholder equity and dividends
D) Revenue, expenses, and profit
Revenue, expenses, and profit
Which ratio explains the leverage of a firm?
A) Current ratio
B) Quick ratio
C) Liquidity ratio
D) Debt ratio
Debt ratio
What accounting method measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur?
A) Cash basis
B) Accrual
C) FIFO
D) LIFO
Accrual
What is used to build the statement of owner’s equity?
A) Income statement
B) Balance sheet only
C) Statement of cash flows
D) Statement of liabilities
Income statement
What else is used to build the statement of owner’s equity?
A) Statement of cash flows
B) Income statement
C) Balance sheet (as part of owner’s equity)
D) None of the above
Balance sheet (as part of owner’s equity)
The _____ was created by the Sarbanes-Oxley Act of 2002.
A) Federal Deposit Insurance Corporation (FDIC)
B) Securities and Exchange Commission (SEC)
C) Financial Accounting Standards Board (FASB)
D) Public Accounting Oversight Board
D) Public Accounting Oversight Board
Which of the following financial statements shows a company’s financial position on a particular date?
A) Balance sheet
B) Income statement
C) Statement of cash flows
D) Statement of owner’s equity
A) Balance sheet
Expenses that have been incurred (such as wages) but have yet to be paid are reported on the balance sheet as _____.
A) Accounts receivable
B) Accruals
C) Depreciation
D) Liabilities
B) Accruals
Which of the following is an example of a non-cash expense?
A) Revenue
B) Interest expense
C) Accounts payable
D) Depreciation
Depreciation
Which of the following current assets is NOT included when calculating the acid-test ratio?
A) Cash
B) Accounts receivable
C) Inventory
D) Marketable securities
C) Inventory
If a firm has a current ratio of 2.5, it means that for every $2.50 in _____ it has $1.00 in _____.
A) Liabilities; equity
B) Current assets; current liabilities
C) Assets; expenses
D) Revenue; operating costs
Current assets; current liabilities
_____ ratios are designed to evaluate a firm’s ability to generate revenues in excess of operating costs and other expenses.
A) Liquidity
B) Leverage
C) Profitability
D) Efficiency
C) Profitability
Which of the following is considered a profitability ratio?
A) Current ratio
B) Quick ratio
C) Return on equity
D) Debt ratio
C) Return on equity
What was established in 1973 to promote worldwide consistency in financial reporting practices?
A) International Accounting Standards Committee (IASC)
B) International Monetary Fund (IMF)
C) Financial Accounting Standards Board (FASB)
D) World Bank
International Accounting Standards Committee (IASC)
Which of the following are aspects of accounts receivable management?
A) Offering discounts on purchases
B) Managing employee payroll accounts
C) Determining credit policies and selecting creditworthy customers
D) Investing in short-term securities
Determining credit policies and selecting creditworthy customers
Capital structure refers to:
A) A company’s investment in physical assets
B) The mix of a company’s debt and equity capital
C) The management of short-term funding
D) The organization of a company’s financial reporting
The mix of a company’s debt and equity capital
The basic accounting equation states that:
A) Assets = Revenue - Expenses
B) Assets = Equity - Liabilities
C) Assets = Liabilities + Owners’ Equity
D) Assets = Net Income + Retained Earnings
Assets = Liabilities + Owners’ Equity
Leverage is:
A) The use of retained earnings to fund expansion
B) Increasing the rate of return on invested funds by borrowing money
C) The process of issuing more equity to raise funds
D) Avoiding debt to minimize financial risk
Increasing the rate of return on invested funds by borrowing money
Who is directly responsible for shareholder relations?
A) Chief Financial Officer
B) Treasurer
C) Controller
D) Chief Operating Officer
Treasurer
In a typical firm, the _____ is the chief accounting manager.
A) Treasurer
B) Chief Financial Officer
C) Controller
D) Internal Auditor
Controller
A _____ specifies the funds a company will need, the timing of inflows and outflows, and appropriate sources and uses of funds.
A) Financial plan
B) Budget forecast
C) Risk analysis
D) Strategic initiative
Financial plan
Which of the following is an action that results in equity capital?
A) Taking out a bank loan
B) Issuing stock
C) Securing commercial paper
D) Acquiring trade credit
Issuing stock
If Kevin does not want stockholders to influence the direction of his company, which type of financing should he acquire?
A) Equity capital
B) Debt capital
C) Venture capital
D) Preferred stock issuance
Debt capital
Which of the following is NOT a source of short-term funds?
A) Trade credit
B) Commercial paper
C) Bank loans
D) Long-term bonds
D) Long-term bonds
_____ is a calculation that determines the difference in revenue of a retailer’s existing supplies over a certain period, usually quarterly, compared to the same period in a prior year.
A) Revenue cycle
B) Profit margin
C) Same-store sales
D) Net income growth
Same-store sales
Commercial paper is an attractive short-term financing option because of its:
A) High interest rate
B) Complex approval process
C) Limited availability
D) Short maturity period
Short maturity period
What is true about trade credit?
A) It is issued by the Federal Reserve
B) It is only available for large corporations
C) It is free of cost if suppliers do not offer a cash discount
D) It has a fixed repayment period of five years
It is free of cost if suppliers do not offer a cash discount
A balance sheet hedge provides a method for global companies to:
A) Increase financial leverage
B) Minimize tax liabilities
C) Reduce risks associated with exchange rate fluctuations
D) Improve accounts receivable collection
Reduce risks associated with exchange rate fluctuations
The procedure used by accountants to convert data about individual transactions to financial statements is called:
A) Financial auditing
B) Budget forecasting
C) Cost analysis
D) The accounting cycle
The accounting cycle
Which of the following assets would a firm most likely finance using long-term sources?
A) Acquisition of another company
B) Office supplies
C) Short-term payroll expenses
D) Monthly advertising costs
Acquisition of another company
_____ would be the LEAST likely to obtain a private placement.
A) Large corporations
B) Institutional investors
C) Small individual investors
D) Venture capital firms
Small individual investors
Most private placements are:
A) Small business loans
B) Government bonds
C) Corporate debt issues
D) Initial public offerings (IPOs)
Corporate debt issues
Trade credit is a major source of short-term financing.
A) True
B) False
True
Which of the following is a long-term funding source?
A) Share capital and retained earnings
B) Short-term trade credit
C) Monthly supplier payments
D) Credit card financing
A) Share capital and retained earnings
Private equity funds are:
A) Loans provided to small businesses
B) Pooled investment vehicles investing in illiquid assets
C) Financial grants issued by the government
D) Stocks traded in public markets
B) Pooled investment vehicles investing in illiquid assets
Venture capital is:
A) Money invested in emerging companies with high growth potential
B) A financial term for government subsidies
C) Low-risk corporate bonds
D) Small personal loans given to startups
Money invested in emerging companies with high growth potential
Commercial paper refers to:
A) A legal contract between two corporations
B) A government-backed financial instrument
C) Short-term unsecured debt issued by large corporations
D) A method for tracking business transactions
C) Short-term unsecured debt issued by large corporations
Who appoints the members of the Public Company Accounting Oversight Board?
A) The Federal Reserve
B) The Securities and Exchange Commission
C) The U.S. Department of Treasury
D) The Internal Revenue Service
The Securities and Exchange Commission
The procedure used by accountants to convert data about individual transactions to financial statements is called:
A) Financial auditing
B) Budget forecasting
C) Cost analysis
D) The accounting cycle
The accounting cycle
Which of the following assets would a firm most likely finance using long-term sources?
A) Acquisition of another company
B) Office supplies
C) Short-term payroll expenses
D) Monthly advertising costs
Acquisition of another company
_____ would be the LEAST likely to obtain a private placement.
A) Large corporations
B) Institutional investors
C) Small individual investors
D) Venture capital firms
Small individual investors
Which two risks does a firm face by funding the purchase of long-term assets with short-term funding sources?
A) Volatility of interest rates and frequent renewals
B) Lower initial costs and higher long-term expenses
C) Immediate depreciation and tax complications
D) Increased regulatory scrutiny and financial reporting issues
Volatility of interest rates and frequent renewals
4 types of financial statements?
A) Balance Sheet
B) long-term expenses
C) Income Statement
D) Statement of Retained Earnings
E) Statement of Cash Flows
- BalanceSheet
- Income Statement
- Statement of Retained Earnings
- Statement of Cash flows
The income statement includes all of the following EXCEPT:
A) Asset valuation
B) Sales
C) Cost of sales
D) Profit
Asset valuation
The balance sheet includes
A) Profit, loss, and tax liabilities
B) Revenue, expenses, and net income
C) Operational activities, investing activities, and financing activities
D) Current assets, long-term assets, current liabilities, long-term liabilities, and stockholders’ equity
Current assets, long-term assets, current liabilities, long-term liabilities, and stockholders’ equity
The statement of cash flows includes all of the following EXCEPT:
A) Operating activities
B) Investing activities
C) Shareholder dividends
D) Financing activities
Shareholder dividends
A Statement of Owner’s Equity does NOT include:
A) Beginning balance
B) Loan amortization schedule
C) Profits added to retained earnings
D) Equity sold
Loan amortization schedule
Which accounting method helps a firm reduce the disparity in exchange rates?
A) Income smoothing
B) Cash flow hedge
C) Interest rate swap
D) Balance sheet hedge
Balance sheet hedge
Why is debt capital cheaper than equity capital?
A) Equity investors require lower returns.
B) Creditors will accept a lower rate of return than investors.
C) Equity capital does not require interest payments.
D) Debt financing reduces financial risk.
Creditors will accept a lower rate of return than investors.
If a firm has more equity capital than debt capital, will shareholders have more or less control?
A) Less
B) More
More
Which of the following is not considered short-term financing?
A) Commercial paper
B) Line of credit
C) Trade credit
D) 3-year fixed interest loan
3-year fixed interest loan
Which financial statement is a permanent statement?
A) Income statement
B) Statement of cash flows
C) Balance sheet
D) Statement of owner’s equity
Balance sheet
Which two financial statements would potential buyers review?
A) Statement of cash flows and balance sheet
B) Statement of owner’s equity and balance sheet
C) Income statement and cash flow statement
D) Balance sheet and income statement
Statement of owner’s equity and balance sheet
Depreciation is a non-cash expense recorded on which statement?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of owner’s equity
Statement of cash flows
Which ratio is considered satisfactory liquidity using the liquidity ratio?
A) 1:1
B) 4:1
C) 3:1
D) 2:1
2:1
Which ratio is considered adequate liquidity using the quick ratio?
A) 1:1
B) 2:1
C) 3:1
D) 4:1
1:1
What does a calculated liquidity ratio of 2:5 indicate?
A) $2.00 in assets for every $5.00 in liabilities
B) $5.00 in assets for every $2.00 in liabilities
C) $2.50 in assets for every $1.00 in liabilities
D) $5.00 in liabilities for every $2.00 in assets
$2.00 in assets for every $5.00 in liabilities
How is inventory turnover calculated?
A) Total revenue / total inventory
B) Gross profit / inventory
C) Cost of goods sold / average inventory
D) Net income / inventory
Cost of goods sold / average inventory
Which formula represents the acid-test ratio?
A) (Total assets - total liabilities) / equity
B) (Cash + marketable securities) / total liabilities
C) (Current assets - inventory) / current liabilities
D) Sales / current liabilities
(Current assets - inventory) / current liabilities
Which inventory turnover ratio indicates better performance?
A) Low inventory turnover ratio
B) Moderate inventory turnover ratio
C) Equal inventory turnover and sales
D) High inventory turnover ratio
High inventory turnover ratio
Why do firms avoid over-reliance on borrowing?
A) To maximize profitability
B) To reduce capital costs
C) To avoid equity dilution
D) To gain leverage
To gain leverage
How often do firms typically prepare a cash budget?
A) Annually
B) Quarterly
C) Weekly
D) Monthly
Monthly
How is the gross profit margin calculated?
A) Net income / sales
B) Operating profit / sales
C) Gross profit / sales
D) Sales / total assets
Gross profit / sales
What does the income statement examine?
A) Assets and liabilities
B) Cash flows and equity
C) Revenue, expenses, and profit
D) Financial ratios
Revenue, expenses, and profit
Which ratio explains a firm’s leverage?
A) Quick ratio
B) Liquidity ratio
C) Debt ratio
D) Profit margin
Debt ratio
Which accounting method measures a company’s performance by recognizing economic events regardless of when cash transactions occur?
A) Cash basis accounting
B) Accrual accounting
C) Mark-to-market accounting
D) Historical cost accounting
Accrual accounting
The income statement is used to build the statement of owner’s equity.
A) False
B) True
True
The balance sheet is used to build the statement of owner’s equity.
A) False
B) True
True
A CMA certification only requires a certain level of
management experience.
A) True
B) False
False
What is the basic accounting equation?
A) Liabilities = Assets + Owner’s Equity
B) Assets = Liabilities + Owner’s Equity
C) Assets + Liabilities = Owner’s Equity
D) Assets = Liabilities + Owner’s Equity
Assets = Liabilities + Owner’s Equity
What is the accounting cycle?
A) The preparation of annual financial statements
B) The procedure for preparing a budget
C) The procedure by which accountants convert data about individual transactions to financial statements
D) The process of calculating net income
The procedure by which accountants convert data about individual transactions to financial statements
What is the role of the accounting cycle?
A) A set of activities that generate cash flows
B) A framework for analyzing accounting errors
C) Set of activities involved in converting information and individual transactions into financial statements
D) A process for closing accounts at the end of the fiscal year
Set of activities involved in converting information and individual transactions into financial statements
What is considered to be a permanent financial statement?
A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Cash Budget
Balance Sheet
What is the main difference between a cash budget and an accrual system?
A) Cash budget reflects the timing of cash flow, accrual system matches expenses to the period when they occur
B) Cash budget tracks revenue, while accrual system tracks expenses
C) Cash budget matches expenses to revenue, accrual system focuses on cash flow
D) Accrual system shows actual cash transactions, while the cash budget is projected
Cash budget reflects the timing of cash flow, accrual system matches expenses to the period when they occur
What do liquidity ratios measure?
A) A company’s profitability
B) A company’s ability to meet its short-term obligations
C) A company’s operational efficiency
D) A company’s long-term financial health
A company’s ability to meet its short-term obligations
What does the activity ratio measure?
A) Profitability of assets
B) Inventory turnover describes how efficiently a company is managing its sales and purchases of inventory
C) A company’s ability to generate revenue from assets
D) A company’s financial stability
Inventory turnover describes how efficiently a company is managing its sales and purchases of inventory
What does a cash budget track?
A) Profit and loss
B) Long-term investments
C) The company’s inflows and outflows
D) Sales performance
The company’s inflows and outflows
What are the three basic activities of an organization?
A) Operating, Financing, Managing
B) Operating, Financing, Investing
C) Managing, Investing, Marketing
D) Operating, Marketing, Selling
Operating, Financing, Investing
What is accounting?
A) The process of tax reporting
B) The process of planning, recording, analyzing, and interpreting financial information
C) The preparation of tax returns
D) The method of managing company assets
The process of planning, recording, analyzing, and interpreting financial information
What are two powers of the U.S. Securities and Exchange Commission (SEC)?
A) Set interest rates and tax policies
B) Regulate stock exchange fees and commissions
C) Protect investors in public securities transactions and pursue civil actions against businesses for securities law violations
D) Manage the issuance of corporate bonds
Protect investors in public securities transactions and pursue civil actions against businesses for securities law violations
What are two risks of financing the purchase of long-term assets with short-term funding sources?
A) Lower return on investment and increased tax liabilities
B) Volatility of interest rates and frequent renewals
C) Reduced market share and slower growth
D) Inflexibility of financing options and loss of company equity
Volatility of interest rates and frequent renewals
What funding source should a firm use if it wishes to secure long-term financing while retaining all of its equity?
A) Short-term bank loans
B) Revolving credit agreements
C) Long-term commercial bank loans
D) Equity financing
Long-term Commercial Bank Loan
What is a balance sheet?
A) A financial statement that reports assets, liabilities, and owner’s equity on a specific date
B) A statement of cash flow showing changes in financial position
C) A summary of operating expenses over a period of time
D) A document detailing a company’s sales and revenue for the year
A financial statement that reports assets, liabilities, and owner’s equity on a specific date
What is the income statement?
A) A report that calculates a company’s net worth
B) A document that lists assets and liabilities for a specific period
C) A statement that shows the company’s profitability over a period of time
D) A financial report showing the liquidity status of the company
A statement that shows the company’s profitability over a period of time
