Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

1 Builders (Exam Review for Business Law) > Accounting and Finance (Overview) > Flashcards

Accounting and Finance (Overview) Flashcards

You may prefer our related Brainscape-certified flashcards:
Civil Procedure 1L flashcards MBE flashcards MPRE flashcards
1
Q

Cash receipts, customer invoices and time cards are all examples of:

a: Important records
b: Source Documents
c: Bookkeeping
d: Accounting

A

b: Source Documents

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Where is information from a business journal posted?

a: General ledger
b: Log book
c: Financial statement
d: Balance sheet

A

a: General ledger

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Which of the below choices is an example of a financial statement?

a: Balance Sheet
b: Income Statement
c: Statement of Cash Flows
d: All of the above

A

d: All of the above

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

True or False. If your company’s receipts exceed its disbursements your company has a negative cash flow.

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What would be an example of a fixed liability?

a: Electric bill
b: Lumber package invoice
c: Troublesome relative
d: Mortgage on a company’s building

A

d: Mortgage on a company’s building

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

A company’s current assets are $100,000, and the total liabilities are $50,000. What is the net working capital of this company?

a: $100,000
b: $50,000
c: $10,000
d: None of the above

A

b: $50,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

This is the time required to purchase or manufacture a company’s inventory, sell the product, and collect the revenue.

a: Purchasing cycle
b: Operating cycle
c: Scheduling cycle
d: None of the above

A

b: Operating cycle

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

An income statement is sometimes called a:

a: Balance sheet
b: Profit and loss statement
c: Statement of cash flow
d: General ledger

A

b: Profit and loss statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What financial statement will provide a company’s net worth?

a: Balance sheet
b: General ledger
c: Assets and liabilities statement
d: Net worth statement

A

a: Balance sheet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Which of the following methods of accounting is used to record income at the time it is earned?

a: Depreciation method
b: Amortization Method
c: Cash method
d: Accrual method

A

d: Accrual method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

An example of a fixed asset would be:

a: Cash
b: Machinery
c: Accounts receivable
d: Prepaid expenses

A

b: Machinery

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

An example of a current asset is ___________ .

a: Cash
b: Inventory
c: Real estate
d: Both a and b

A

d: Both a and b

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

___________ writes off the depreciable value of an asset at a uniform rate throughout its usable life.

a: Accelerated depreciation
b: Uniform rate depreciation
c: Fixed depreciation
d: Straight-line depreciation

A

d: Straight-line depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

True or False. Profitability ratios show the relationship between income or revenues versus investments and assets.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

The process of allocating the cost of a tangible fixed asset over the asset’s useful life is called _____________ .

a: Appreciation
b: Depreciation
c: Accrual
d: None of the above

A

b: Depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

If a company has $37,525 in current assets and $12,672 in current liabilities, what is this company’s liquidity ratio?

Note: Current Assets divided by Current Liabilities = Liquidity Ratio

a: 2.96
b: 3.32
c: 3.63
d: 3.87

A

a: 2.96

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

If a company has debt totaling $128,000 and total assets of 463,250 what is this company’s debt ratio?

Note: Total Debt divided by Total Assets = Debt Ratio

a: .252
b: .265
c: .276
d: .31

A

c: .276

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

If a company has current assets totaling $257,525 and an inventory value of $25,617 and current liabilities of $65,717, what is this company’s quick ratio?

Note: (Current Assets - Inventory) divided by Current Liabilities = Quick Ratio

a: 3.17
b: 3.25
c: 3.35
d: 3.52

A

d: 3.52

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Last year our company produced revenues totaling $865,125 and we secured a net income of $265,463. What is our profitability ratio for last year?

Note: Net Income divided by Revenues = Profitability Ratio

a: .306
b: .318
c: .32
d: .378

A

a: .306

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

True or False. The needed cash flow for a project should be provided for in the written terms of a contract to insure the needed monies are available to pay for expenses as the job progresses.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

A financial statement that provides a summary of the company’s revenues and expenses over a given period of time is:

a: Balance sheet
b: Income statement or profit and loss statement
c: Statement of cash flows
d: Any of the above

A

b: Income statement or profit and loss statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

A creditor’s claims on a company’s assets is called a___________.

a: Disbursement
b: Cash flow
c: Liability
d: Any of the above

A

c: Liability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

True or False. Workers Compensation is paid for by the employer, no monies are deducted from the employees pay check to help pay for this expense.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

An invoice is received from a supplier dated June 1st in the amount of $4275.24, the payment terms are 5/10 EOM. How much does the contractor owe if the payment is made on June 8th?

Note: 5 percent discount if paid within 10 days of the invoice date or the total amount is due at the end of the month.

a: $4275.24
b: $3847.72
c: $4061.48
d: $4270.24

A

c: $4061.48

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

The __________ method of accounting records income when services occur (at the time of invoicing the customer), and expenses are recorded at the time they are incurred ( when invoices are received).

a: Cash
b: Accrual
c: Cash flow
d: Posting

A

b: Accrual

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Of the two accounting methods below, which one is considered the better management tool?

Note: This method provides a manager with a much clearer picture of a company’s financial situation.

a: Cash
b: Accrual

A

b: Accrual

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

True or False. During a given accounting cycle a company collected $55,125 in accounts receivable and paid out $50,275 in expenses. This company has a negative cash flow.

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Your balance sheet is used to describe the financial status of your business:

a: As of a specific date
b: For the fiscal year
c: For the calendar year
d: For a particular

A

a: As of a specific date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

The main purpose of budgeting is to:

a: Plan ahead for a project, or series of projects
b: Find the lowest cost for labor and materials
c: Prevent the checking account from becoming overdrawn
d; Prepare an accurate financial statement

A

a: Plan ahead for a project, or series of projects

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Which of these is not an asset?

a: Tools
b: Inventory
c: Accrued wages
d: Prepaid expenses

A

c: Accrued wages

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Where is information from a business journal posted?

a: General ledger
b: Log book
c: Financial statement
d: Balance sheet

A

a: General ledger

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Which of the below choices is an example of a financial statement?

a: Balance Sheet
b: Income Statement
c: Statement of Cash Flows
d: All of the above

A

d: All of the above

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

An example of a fixed asset would be:

a: Cash
b: Machinery
c: Accounts receivable
d: Prepaid expenses

A

b: Machinery

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

The formula for calculating working capital is:

a: Assets minus liabilities
b: Assets divided by liabilities
c: Current assets minus current liabilities
d: Net income divided by revenues

A

c: Current assets minus current liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

A company’s current assets are $100,000, and the total liabilities are $50,000. What is the net working capital of this company?

a: $100,000
b: $50,000
c: $10,000
d: None of the above

A

b: $50,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

True or False. Laborers’ salaries are typically direct cost.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Which of the following methods of accounting is used to record income at the time it is earned?

a: Depreciation method
b: Amortization method
c: Cash method
d: Accrual method

A

d: Accrual method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What financial statement will provide a company’s net worth?

a: Balance sheet
b: General ledger
c: Assets and liabilities
d: Net worth statement

A

a: Balance sheet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Prompt Payment Law requires owners to pay contractors within ________ days of receiving the contractor’s written request if the conditions of the contract have been met by the contractor.

a: 10
b: 20
c: 30
d: 60

A

c: 30

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

A system of recording and summarizing business and financial transactions is called _______________.

a: Record-keeping
b: Tracking
c: Accounting
d: Economics

A

c: Accounting

41
Q

A company’s cash, accounts receivable, inventory, notes receivable and prepaid expenses are examples of ______________________.

a: Asset
b: Current Assets
c: Capital
d: Liability

A

b: Current Assets

42
Q

For general purposes, financial records should be kept for up to ________ years.

a: 2
b: 3
c: 5
d: 7

A

d: 7

43
Q

Notes payable, accounts payable, unpaid wages and taxes due are all examples of ___________________________.

a: Accounting
b: Current Liabilities
c: Fixed Liabilities
d: Labor Burden

A

b: Current Liabilities

44
Q

Accounting is based on five basic account types:

a: Assets, Liabilities, Income, Disbursements and Payroll
b: Assets, Liabilities, Equity, Income and Expenses
c: Income, Expenses, Revenues, Costs and Liabilities
d: Liquidity, Equity, Liabilities, Income and Capital

A

b: Assets, Liabilities, Equity, Income and Expenses

45
Q

Many times a contract cannot be completed in one taxable year. the Tax Reform Act or 1986 allows you to use a different accounting method in order to estimate income. Which of the following are acceptable?

a: Completed Contract Method
b: Percentage of Completion Method
c: Cost Comparison Method
d: All of the above

A

d: All of the above

46
Q

1/10 Net 30 means:

a: 1% discount if paid by the 10th day of the month after the purchases are shipped
b: 1% discount if paid within 10 days; otherwise the entire amount is due within 30 days
c: Payment is due 10 days after receiving the invoice
d: Cash on delivery

A

b: 1% discount if paid within 10 days; otherwise the entire amount is due within 30 days

47
Q

What are the deductions for Payroll Taxes?

A
  • Federal Income Tax (W-4)
  • Social Security Tax and Medicare
  • Federal unemployment insurance
  • State Income Tax
  • Various Local Tax Withholdings
48
Q

What is Net Pay?

A

The amount the employee receives after all deductions are made.

49
Q

In addition to time cards, employers should keep what records and information?

A
  • W-4 Forms
  • Hours worked
  • Wage rates
  • Accumulated overtime
  • Amount and dates of all wage payments, withholdings, vacation, sick pay and fringe benefits.
  • Written authorizations from employees for non-tax deductions
  • Any employee copies of W-2 that were returned undeliverable
  • All records of withholdings paid to the government–containing dates and amounts.
50
Q

What is an Employer Identification Number (EIN)?

A

If you are required to report employment taxes or give tax statements to employees, you need a EIN. This is a 9 digit number that is issued by the IRS it is arranged as: 00-0000000

51
Q

How does a Sole Proprietorship pay taxes?

A

It is considered to be a component of the individual’s personal tax situation. The tax form required is the Schedule-C which is included with the owner’s Form 1040. In addition, if the business has net taxable income, then a Schedule SE must be prepared to determine the amount of self-employment tax that is due.

Taxes: Income, Self-employed, Estimated, Employment, Excise
Forms: Form 1040, Schedule C, Schedule SSE, 941, 940/940EZ

52
Q

How does a Partnership pay taxes?

A

A partnership is not a taxable entity. It is treated as a conduit through which taxable income is passed to the individual partners for inclusion in their respective tax returns.

Taxes: Annual return of income, Employment, Excise
Forms: Form 1065, Schedule K-1 (Partners may have to pay self-employment tx on flow-through income)

53
Q

How does a Corporation pay for taxes?

A

A corporation is considered a taxable entity and is required to file a Federal Form 1120.

54
Q

How does an S-Corporation pay for taxes?

A

This type of corporation is specially treated under the tax laws. The government taxes this type of entity in the same manner as a partnership, with certain exceptions. The tax forms required are Federal Form 1120S

Taxes: Income, Estimated, Employment, Excise
Forms: Form 1120-S, Schedule K-1

55
Q

How does a Limited Liability Company (LLC) pay taxes?

A

This is a relatively new form of business organization and if properly structured, is treated as a partnership for Federal income tax purposes. For state income tax purposes, the state determines the income tax.

56
Q

What is an Estimated Tax?

A

Sole proprietors, partners, and S-Corporations must pay these if they expect to owe at least $1,000 in taxes for the current year. This tax should be filed with Form 1040-ES, Estimated Tax for Individuals.
Corporations must make estimated payments if the expected tax owed is $500 or more. Form 1120-W, Estimated Tax for Corporations is used to calculate estimated taxes.

57
Q

How are Self Employment Taxes calculated

A

You must pay these taxes if your net earnings were $400 or more. You calculate self-employment tax (SE tax)) using Schedule SE (Form 1040). You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income.
EX: In 2015 the rate was 15.3% (12.4% for Social Security and 2.9% for medicare)

58
Q

How long should you keep records of employment?

A

At least four years.

59
Q

How do Social Security and Medicare Taxes Work?

A

You withhold part of Social Security and Medicare taxes from your employee’s wages and you pay a matching amount yourself. Social Security and Medicare taxes pay for the benefits employees receive from FICA.

60
Q

What is a Federal Income Tax Withholding?

A

This is the tax that is levied by the federal government on the annual earnings of individuals, corporations, trusts and other legal entities. To determine how much to withhold from each paycheck, use the employee’s W-4 form.

61
Q

Who completes the W-4?

A

The employee, it allows them to calculate the correct federal withholding based on an individual’s filing status, withholding allowances and exemptions. The employee must furnish the employer with a completed W-4 on or before their start date.

62
Q

What does the employer complete at the end of the year?

A

Form W-2, Wage and Tax Statement to report wages, tips and other compensation paid to an employee. this must be given by January 31st after the end of each year.

63
Q

What is the Federal Unemployment Tax (FUTA)

A

This is paid separately from Federal Income Tax, and Social Security and Medicare taxes. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay.

64
Q

What are Accounts Receivable?

A

Outstanding payments that are owed from customers in return for goods and services that you and your company provided, this counts as an asset.

To encourage prompt payment, you can extend a discount on the balance to customers who pay early. Too many aging account receivables will give you a lot of credit and you may end up with a cash deficit.

65
Q

What are typical time lengths for accounts receivable outstanding?

A
  • 30 days
  • 45 days
  • 60 days
66
Q

What are Accounts Payable?

A

When a business owes a debt to suppliers or subs, this is considered accounts payable, these are shown as a liability on your company balance sheet.

67
Q

What are the two most important aspects of revenue recognition?

A

Matching & Consistency

68
Q

What happens when contracts cannot be completed in a taxable year?

A

The Tax Reform Act of 1986 allows for the use of one of three accounting methods for this type of long-term project.

69
Q

What is the Completed Cost Method?

A

Instead of estimating income according to partial project cost, the completed project method recognizes profits only when the project is completed.
The primary benefit is the ability to defer taxes. This method can only be used by small businesses whose gross receipts do not exceed $10 million for the last three years.

70
Q

hat is the Percentage of Completion Method?

A

Assigns cost and profits according to the degree of actual project completion. this method matches revenue to expenses incurred, giving a better overall picture of your finances.

71
Q

What is the Cost Comparison Method?

A

Recognizes 90% of the estimated expenses and income calculated by the percentage of completion method to current fiscal year. The remaining 10% of the project expenses and income are deferred to the year the project is completed.

72
Q

What is the main difference between the cash method and the accrual method?

A

The timing of when income and expenses are recognized.

73
Q

What is the Accrual Method?

A

It records income at the time income is earned. Transactions are counted when the order is made, delivered, or completed, regardless of when the money is actually received.

74
Q

What is the Cash Method?

A

Under this method, income is not counted until cash (or a check) is received, and expenses are not counted until they are actually paid.

75
Q

What is recorded in a a bookkeeping cycle?

A
  • Incoming monies
  • Outgoing payments
  • Invoice customers for work performed
  • Record payroll
  • Make payroll deposits
76
Q

What are some steps to stay organized in the accounting cycle?

A
  • Always keep all records up to date, recording transactions as they occur
  • Keep business and personal finances separate (separate bank accounts).
  • Make all payments by check so you have a record of the payment
  • Never write checks to “cash”. Always make the check out to your own name, document its purpose and deposit in a personal account.
  • Save all receipts and keep them organized and recorded. If a receipt is not available, write a statement explaining the transaction.
  • Record all deposits and expenses at the time they occur.
  • Balance bank statements monthly
  • Keep all bank statements and canceled checks at least four years.
  • Keep copies of all tax returns
  • Understand payment terms and progress payments.
76
Q

What are some steps to stay organized in the accounting cycle?

A
  • Always keep all records up to date, recording transactions as they occur
  • Keep business and personal finances separate (separate bank accounts).
  • Make all payments by check so you have a record of the payment
  • Never write checks to “cash”. Always make the check out to your own name, document its purpose and deposit in a personal account.
  • Save all receipts and keep them organized and recorded. If a receipt is not available, write a statement explaining the transaction.
  • Record all deposits and expenses at the time they occur.
  • Balance bank statements monthly
  • Keep all bank statements and canceled checks at least four years.
  • Keep copies of all tax returns
  • Understand payment terms and progress payments.
77
Q

What is a Payroll Journal?

A

This journal contains information needed for state and federal reports, in addition to employee wage information. This journal should also contain labor costs data broken down by specific types of jobs for use in future contract estimates.

78
Q

What is a Disbursements Journal?

A

This journal shows the amounts paid out and tells what the payments cover. It shows where the money went and what it was spent on. A contractor will know if the funds are available to cover accounts payable on time and how much is still owed.

79
Q

What is a Cash Receipts Journal?

A

This journal records all income received. Information from this journal can be used for job costing and preparing sales tax forms.

80
Q

What is a General Journal?

A

This journal is used to record all non-cash expenses. Some examples include equipment depreciation and bad debts.

81
Q

What are the 5 basic account types?

A
  • Assets
  • Liabilities
  • Equity
  • Income
  • Expenses
82
Q

At the end of the month, entries made in the journals are summarized and transferred to what?

A

The General Ledger

83
Q

When can financial statements be prepared?

A

After all income and expenses are posted to the General Ledger.

84
Q

What are the five steps of the accounting cycle?

A
  1. Correctly classify and record transactions
  2. Transfer or post recorded transactions to the appropriate accounts
  3. Prepare a trial balance
  4. Adjust entries
  5. Prepare financial statements
85
Q

What is a balance sheet?

A

A one or two page summary of a company’s assets, liabilities, and net worth for that accounting period.

86
Q

What are the two types of assets?

A

Current Assets: Assets that can be converted into cash quickly, and include cash, accounts receivable, inventory, loans and notes receivable and any pre-paid expenses.

Fixed Assets: Assets that cannot be converted quickly, and include real estate, machinery and equipment.

87
Q

What are the two types of liabilities?

A

Current Liabilities: Debts that must be paid within one year.

Fixed Liabilities: Long-term debts.

88
Q

What is equity?

A

It is the same as net worth. It represents what is left over after subtracting your liabilities from your assets. it is the portion of your assets that you own outright without any debt.

89
Q

What does the income statement revolve around?

A
  • Revenues
  • Direct Costs
  • Expenses
  • Indirect Costs
  • Gross Profit
  • General and Administrative Costs
  • Operating Expenses
  • Other/Income expenses
  • Tax Provision Expenses
90
Q

What are Financial ratios?

A

These help you measure your company’s performance against industry standards. These ratios help answer important questions?

  • Does the company have too much debt?
  • Are we carrying too much inventory?
  • Are customers paying on time?
  • Are overhead costs excessive?
91
Q

What is a Liquidity Ratio?

A

Measures a company’s short run ability to meet financial obligations.

Current assets / Current Liabilities = Liquidity Ratio

92
Q

What is a Quick Ratio or “Acid Test”?

A

It measures how well the business can meet its debt without having to sell inventory. Calculated by dividing current liabilities into the current assets minus inventory.

(Cash + Accounts Receivable_)/ Current liabilities = Quick Ratio

93
Q

What is a Current Ration?

A

It measures a company’s financial strength to pay current liabilities by using only currents assets, including inventory. the higher the current ratio, the greater difference between current liabilities and a company’s ability to pay them (the company is at less risk of default).

Total Current Asset / Total Current Liabilities

94
Q

What is Working Capital?

A

It measures the available funds to finance current business activities. Generally, it is the amount of money left over when all current liabilities are paid by liquidating current assets.

Total Current Assets - Total Current Liabilities

95
Q

What is a Debt Ratio?

A

It measures the relationship between capital contributed and invested by the owners and the funds provided by creditors. It indicates the extent of protection provided by the owners for creditors.
The higher the ratio, the greater the risk to a current or future creditor. A lower ratio means the company is more financially stable and is probably in a better position to borrow.

Total Liabilities (or Debt) / Total Owner’s Equity

96
Q

What is a Profitability Ratio?

A

It is used to compare the profitability of various types of jobs, suggesting areas of concentration for the contractor.

Net Income / Revenues = Profit Margins

97
Q

What is a Return on Total Assets Ratio?

A

It is used to determine if the company’s assets are being employed in the best manner?

Net Profit / Total Assets = Return on Total Assets

1 Builders (Exam Review for Business Law) (13 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions