Chapter 13 - Management of Financial Resources

Question 1

Auditing

Answer 1

Independent review of accounting records.

Question 2

Cost accounting

Answer 2

Determination and control of cost.

Question 3

Financial accounting

Answer 3

Reporting of transactions for an organization and the periodic preparation of various reports from these records.

Question 4

Managerial accounting

Answer 4

Uses historical and estimated financial data to assist management in daily operations and in planning future operations.

Question 5

Selected Accounting Principles

Answer 5

Principles that help provide consistency to the preparation of financial statements.

Question 6

Business Entity Concept

Answer 6

Accounting Principle: Assumes that a business enterprise is separate from the person or persons who supply its assets, and the financial records of each are distinct.

Question 7

The Fundamental Equation

Answer 7

Accounting Principle: Assets = Liabilities + Owner’s equity

Question 8

Going-Concern Concept

Answer 8

Accounting Principle: The value of a company’s assets is its ability to generate revenue rather than the value the assets would bring in liquidation.

Question 9

Money as a Unit of Measure

Answer 9

Accounting Principle: Money is the unit of measure (revenue)

Question 10

Cost Principle

Answer 10

Accounting Principle: Recording transactions or valuing assets in terms of dollars.

Question 11

Cash Bases of Accounting

Answer 11

Accounting Principle: Recognizes a transaction at the time of cash inflow or outflow.

Question 12

Accrual Bases of Accounting

Answer 12

Accounting Principle: Recognize revenue when earned and expenses when incurred regardless of when cash is dispersed).

Question 13

Matching Revenues and Expenses

Answer 13

Accounting Principle: Matching revenues with all applicable expenses during the accounting period in which they occur.

Question 14

Depreciation

Answer 14

Accounting Principle: Costs associated with the acquisition and installation of a fixed asset are allocated over the estimated useful life of the asset.

Question 15

Adequate Disclosure

Answer 15

Accounting Principle: Financial statements and their accompanying footnotes or other explanatory materials should contain full information on all data believed essential to a reader’s understanding of the financial statement.

Question 16

Consistency Principle

Answer 16

Accounting Principle: Once an organization chooses an accounting method, it should be used from one period to another to make financial data comparable.

Question 17

Materiality Principle

Answer 17

Accounting Principle: Information must be accounted for if they make a difference to the user of financial statements.

Question 18

Conservatism

Answer 18

Accounting Principle: The concept of moderation in recording transactions and assigning values.

Question 19

Basic Financial Statements

Answer 19

Balance sheets and Income statements

Question 20

Balance sheets

Answer 20

a statement of assets, liabilities (debt) and owner’s equity.
Assets = Liabilities + owner’s equity

Question 21

Liabilities

Answer 21

the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
(Debt)

Question 22

Assets

Answer 22

represent value of ownership that can be converted into cash.
(Resources)

Question 23

Equity

Answer 23

the value of an asset less the amount of all liabilities on that asset.

Question 24

Income Statement

Answer 24

Reports the revenues, expenses and profit or loss as a result of operations for a period of time.

Question 25

Revenues

Answer 25

the income that a business has from its normal business activities, usually from the sale of goods and services to customers.

Question 26

Break-Even Analysis

Answer 26

A tool for projecting income, expense, and profit under several assumed conditions.
Can assist in understanding the interrelationships among volume, cost and profit.

Question 27

Break-Even point

Answer 27

The point at which an operation is just breaking even financially.

Question 28

Fixed Cost

Answer 28

Costs required for an operation to exist.

Question 29

Variable Costs

Answer 29

Costs that change in direct proportion to the volume of sales.

Question 30

Contribution margin

Answer 30

Proportion of sales that can contribute to fixed costs and profits after variable costs have been covered.

Question 31

Budget

Answer 31

Plan for operating a business expressed in financial terms

Question 32

Operating Budget

Answer 32

Short term, A detailed projection of all estimated income and expenses based on forecasted sales revenue during a given period (usually one year). It generally consists of several sub-budgets, the most important one being the sales budget, which is prepared first.

Question 33

Capital Budget

Answer 33

The process of determining and evaluating potential expenses or investments that are large.