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joe > Business Practices > Flashcards

Business Practices Flashcards

1
Q

John Carson is a newly licensed contractor and he needs some start-up capital in order to begin business. Which of the following is the best way for him to get the capital that he needs?

A Get a loan from private investors who will own equity in his business

B. Obtain a conventional loan from his bank and make monthly payments

C. Borrow from his friends and relatives

D. None of the above. He should avoid all debt during the first year of business.

A

B

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2
Q

Aside from requiring a certain amount of start-up capital, new contractors need to establish credit with suppliers. What is the most common source of startup capital for a small contracting business?
A Long-term loan
B. Short-term loan
C. Equity funds
D. Small Business Administration

A

C

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3
Q

A banker is reviewing your application for a short- term business loan. Select the statement which indicates what is most important to the bank?
A Ratio of sales to your prior year’s sales
B. Your percentage of profit
C. A current ratio and/or quick ratio
D. All of the above

A

C

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4
Q

A contractor wants to establish a line of credit with a local bank. What will the banker need to determine if the contractor is eligible for a line ofcredit?
A Balance sheets for current and prior years
B. Income statements for current and prior years
C. Information on any uncompleted contracts
D. All of the above

A

D

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5
Q

For which expense is it least appropriate for a contractor to seek a short-term loan?
A. Monthly rent on office space
B. Bid deposit
C.Payroll expenses
D. Material costs

A

A

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6
Q

In order to get a loan from a bank to buy supplies for which you can pay back within
90 days, acceptance of your loan will depend on:

A The fact that you have short term liquidity
B. A high quick ratio
C. Your ability to pay the loan back within 90 days
D. All of the above

A

D

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7
Q

If Bill, a contractor, decides to take out a loan to pay for a truck, he should obtain an):

A Short-term loan to be paid within one year
B. Intermediate term loan to be paid in 1-7 years
C. Long-term loan to be paid in more than 7 years
D. A loan financed for as long as the bank permits

A

B

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8
Q

Which of the following statements concerning accounting systems is correct?

A. The accrual method is the easiest way to keep financial records

B. Financial statements and management reports do not reflect current financial conditions when using the cash method

C. The accrual method recognizes cash received but not earned, as a liability and not as income

D. None of these are correct

A

C

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9
Q

Which is the best method of bookkeeping in a construction company?

A. Record your expenses when they occur and not when they are paid, as well as record your income when you have earned it.

B. Record your expenses when you pay for them and record your income when you receive it

C. The accrual method recognizes cash received but not earned, as a liability and not as income

D. None of these is correct

A

A

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10
Q

Francis is starting a new business. Which of these would be the best decision?
A Maintain his own books
B. Have anyone other than himself handle the books
C. Hire a professional bookkeeper to keep the books
D. Initially not keep any books, as it is too time consuming

A

C

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11
Q

In bookkeeping, let’s say a discrepancy emerges between debits and credits of approximately $9.32. What should the bookkeeper do?

A Take the money out of pocket and make up the difference
B. Find the error, no matter how long it takes
C. Take the money out of petty cash
D. Report the amount on a special line at the bottom of the page showing the difference, providing it does not represent more than 1%

A

B

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12
Q

Bill, a new contractor, just purchased a new truck. If Bill pays cash for the truck, how will this transaction be recorded?

A Credit trucks, then debit cash
B. Debit trucks, then credit cash
C. Debit trucks, then debit cash
D. Credit trucks, then credit cash

A

B

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13
Q

At the end of each month, data is posted from the bookkeeping journals to the:

A. Payment journal
B. General ledger
C. Receipts journal
D. General journal

A

B

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14
Q

A contractor should incorporate his chart of accounts into his:
A General journal
B General ledger
C. Fixed journal
D. Journals & ledgers

A

D

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15
Q

Contractors deal with numerous forms, files and reports. What is the minimum length of time that a contractor SHALL keep a building report in his/herfiles?

A 2 years
B. 5 years
C. Not less than 3 years
D. 10 years

A

B

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16
Q

Ned Smith has been contracting for about 5 years. Ned, who has been managing all phases of this business, is studying his financial statements to determine the condition of his company. What does an intelligent construction manager do to determine his financial position?

A He compares data for the current year with that of previous years
B. He compares the data of his company with data of other similar companies, if available
C.He uses ratios to analyze financial data
D. All of the above

A

D

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17
Q

Which of the following represents a current asset?
A Accounts payable
B. Retained earnings
C. Retentions
D. Accrual payroll

A

D

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18
Q

Which of the following is a tangible asset?

A Notes due
B. Materials
C. Mortgage
D. Rent

A

B

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19
Q

What is a fixed asset?

A Assets which will not be sold for a least one year
B. Assets that turn into cash within the fiscalyear
C. The actual material kept on hand
D. A note that is due within one year

A

A

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20
Q

Which is true about liabilities?

A. Can be either current or long-term
B. Are obligations to pay money or render services
C. Can consist of accounts payable, payroll and mortgage
D. All of the above

A

D

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21
Q

On a balance sheet, why is net worth important?

A It represents the amount of money the owner has invested in the company as well as the profits the company has retained. It tells how much of the company’s assets belong to the owner.

B It shows how much profit a company has made and indicates how this compares to the amount of sales the company has made

C. Since it is done once a year, it is important in determining the success for the coming year and how to plan the coming year’s success

D. It represents the total earning of a company from its start less the total money distributed to the owners since the company was formed and is a good indicator where the company is headed

A

A

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22
Q

The term “net worth” on a corporate balance sheet represents the:

A Difference between current assets and current liabilities
B. The claim of the owner on the assets of the business
C. The ratio of assets to liabilities
D. The difference between sales of residences and total operating expenses

A

B

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23
Q

On a balance sheet, a figure is entered by mistake on the asset side instead of the liability side. Which are the following results?

A The error will be three times as great
B The error will be twice as large
C.The error will be half as large
D. The error will be insignificant

A

B

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24
Q

An error on a balance sheet is found to be divisible by 9. What is the probable cause of this error?

A Transposing figures
B. Putting a credit on the debit side
C. Putting a debit on the credit side
D. Entering a figure twice on the credit side

A

A

25
Q

What is the best way to tell if your company is profitable or not?

A Check with the company bank
B. Compare the size of the inventory with last year’s
C. Look at the balance sheet
D. Look at the income statement

A

D

26
Q

An income and expense statement can be also called a:

A Profit and loss statement
B. Income statement
C. P&L statement
D. All of the above

A

D

27
Q

How often should income statements be prepared?

A . Weekly
B. Monthly
C. Yearly
D. Whenever you want to review your profit or loss

A

D

28
Q

Directs costs are:

A. Labor and material costs
B. Costs charged directly to the job site
C. A&B
D. Costs charged directly to expenses

A

C

29
Q

Of the following, select the item that is a direct cost.
A Pens, pencils, and other office supplies
B. Office rental payment
C. Depreciation of office equipment
D. Payroll tax

A

B

30
Q

Labor costs are determined by:

A. The gross wages paid to employees

B. Gross wages, payroll taxes, health and welfare benefits, insurance, and vacation

C. Gross wages, payroll taxes, health and welfare benefits, and insurance

D. None of the above

A

B

31
Q

Direct labor is comprised of:

A Actual cost of labor payroll
B. Actual cost of labor and payroll taxes
C. Expenses charged to overhead
D. Labor and labor burden

A

D

32
Q

Direct labor burden includes:
A Payroll taxes
B. Insurance for employees
C. A&B
D. Payroll

A

C.

33
Q

Which of the following is an example of an indirect cost?

A Labor and material
B. Permits
C. Performance bond
D. Marketing cost

A

C

34
Q

What is the relationship between overhead and fixed expenses?

A Overhead is generally considered a fixed expense

B There is no relationship

C They are opposites

D They are both found on a balance sheet

A

A

35
Q

Which is true of “overhead”?

A. It consists of expenses necessary to run a company but not necessarily expenses incurred on the job site

B. It is important to include in bids

C. It includes advertising, bad debts, and storage charges

D. All of the above

A

D

36
Q

Why is overhead important to a contractor?

A It represents the amount of money it costs to run a company and is important in determining accurate bids

B. It is important to know the true value of the labor and material when the contractor makes bids

C. It lets the contractor know the true profit the company is making and helps determine the correct ratio of operation

D. When taking out a loan with the bank, the banker needs to know this figure in determining the ability to pay back the loan

A

A

37
Q

Which of the following is considered “overhead?”

A Labor and materials
B. Permits and performance bonds
C. Rent and office expenses
D. Any cost incurred on the job site

A

C

38
Q

Overhead percentage is greaterior:

A. Original contractors
B. Small contractors
C. Large contractors
D. Subcontractors

A

B

39
Q

What is the average overhead for a contractor when preparing to bid a job?

A. 15%

B 20%

C. 25%

D 40%

A

C

40
Q

New profit is calculated:

A. By adding up all expenses and subtracting federal income taxes

B. By first deducting expenses from net income and then subtracting federal income tax

C. By adding all expenses, including provision for federal income taxes and deducting that total from sales

D. By subtracting total operating expenses from sales of residences

A

C

41
Q

The balance sheet and the income statement are the best tools to see how a business is doing. What is the difference between these two statements?

A The income statement indicates the net worth of the business, while the balance
sheet shows monthly expenses

B. The income statement shows what you own, while the balance sheet shows how it was earned

C. The income statement indicates income earned over a period of time, while the balance sheet indicates equity at a specific point of time

D. The balance sheet and income statement are used to show assets, liabilities, and owner’s equity

A

C

42
Q

Where is depreciation listed?

A In the income and expense statement
B. In the balance sheet
C. In the profit and loss statement
D. Co All of the above

A

D

43
Q

Depreciation is shown on the balance sheet in the:
A. Current liability section
B. Current asset section
C. New worth section
D. Fixed asset section

A

D

44
Q

Depreciation is shown on an income statement as:

A. An expense statement
B. Plant and property
C. An income statement
D. Depreciation is not shown on an income statement

A

A

45
Q

Why are depreciation figures important for a contractor?

A. It lets him know the true value of his assets, thereby knowing the value of his company

B. Depreciation is treated as an expense and it reduces taxable income

C. It is the difference between assets and liabilities that indicates the net worth of the company

D. Since depreciation appears on the balance sheet and the income statement, if this figure is not known, it will be difficult to determine the true value of the assets and may lead to bankruptcy if not controlled

A

B

46
Q

If you include depreciation on your income statement in the 1st year of business, but you do not include it in the 2nd year. How will this affect the net income?

A. It is illegal to omit depreciation
B. The net income will be the same for both years
C The net income will be less than it should be
D. The net income will be greater than it should be in the 2rd year

A

D

47
Q

Joe has a truck worth $10,000 that is considered to have a useful life of 10 years. He depreciates it 10% the first year for income tax purposes. In the second year, he wants to write off the remaining 10 years.

A This is not possible
B. This is legal if the IRS is notified
C. He is allowed to do so with a truck, a fixed asset, but not with a liquid asset
D. He can depreciate the truck any way he wishes

A

A

48
Q

The best way for a contractor to insure that he will have sufficient money at the end of a construction project is to:

A Immediately borrow all the money he estimates he will need for the entire year

B. Only borrow money after he finds he can no longer meet his expenses

C. Establish a line of credit beforehand from a bank

D. Avoid expensive jobs

A

C

49
Q

What is the purpose of a budget?

A. One way to control expenditures
B. To set limits and when those limits are exceeded, reasons can be identified
C. Useful in planning cash flow
D. All of the above

A

D

50
Q

A budget allows you to keep control over your expenses. It shows you what you need to do to make your business a success.
Select the most accurate statement regarding a budget and its purpose.

A. Expenses should meet projections by the end of each month
B. Adjust your budget based on your anticipated income
C. A budget is used to set goals to work toward
D. A budget allows you to perform a quick ratio

A

C

51
Q

Which of the following is NOT a recommended billing practice?

A Bill in a timely manner on a simple, itemized form and require
payment in 30 days

B. Insist on cash for service calls

C. Encourage time payments if the customer has good credit

D. Consult an attorney if you are having collections problems

A

C

52
Q

If you owe money on charge accounts, these are called:

A Notes due
B. Accrued expenses
C. Accounts payable
D. Accounts receivable

A

C

53
Q

One of your customer’s accounts has gone past 30 days. What is the best method of handling it?

A Send it to a collection agency
B. Contact the customer and put them on a new payment schedule
C. Begin to charge interest on the customer’s account
D. None of the above

A

C

54
Q

If you see “2%, 10; net 15” or “2% Prox 1 0, net 15,” on a billing statement from a supplier, what does it mean?

A. A Payment is due on the 15th, if not paid by the 10th

B. A discount of 10% is given if payment is received by the 10% full by the 15th

C. A 2% discount is given if the bill is paid by the 10th, otherwise the bill is to be paid in full by the 15th

D. None of the above

A

C

55
Q

Why would there be a difference between actual inventory and inventory on paper?

A Because of theft, natural losses and mistakes
B. There never is a substantial difference
C. Because of depreciation
D. All of the above

A

A

56
Q

A contractor bills an owner on the first of the month and indicates that the delinquent date would occur on the fifteenth of the month. If the client does not make payment by the fifteenth, what is the contractor’s probable next action?

A. Inform the contractor’s attorney
B. Send the bill to a collection agency
C. Send a follow-up letter to the owner, along with another bill
D. Re-bill the owner at the beginning of the next month

A

C

57
Q

A major reason contractors go out of business is:
A. Taking on too many jobs; poor scheduling B. Taking funds from one job to finance another
C. Floating big bank loans
D. All of the above

A

D

58
Q

One major reason for business failures is:
A Lack of cash flow
B. Lack of profit
C. Lack of credit
D. Slow expansion

A

A

59
Q

What would be a reason for a business to fail?
A. Business expands too rapidly
B. Contractor takes on too much work
C. Lack of business knowledge
D. All of the above

A

D

joe (6 decks)

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