Chapter 4

Question 1

Assets

Answer 1

Financial, physical, and intangible items owned by the business.

Question 2

Generally accepted accounting principles (GAAP)

Answer 2

Guidelines that set out the manner in form of presenting accounting information.

Question 3

Accrual accounting

Answer 3

The practice of recording economic activity when it is recognized rather than waiting until it is realized.

Question 4

Balance sheet

Answer 4

Financial statement that provides a snapshot of a businesses financial position as of a specific date.

Question 5

Liquidity

Answer 5

How quickly and asset can be converted into cash.

Question 6

Current assets

Answer 6

Cash and other assets that are expected to be converted into cash less than one year.

Question 7

Cash

Answer 7

The amount of coin, currency, and checking account balances.

Question 8

Marketable securities

Answer 8

Short term, high-quality, high liquid investments, that typically pay interest.

Question 9

Receivables

Answer 9

Credit sales made to customers.

Question 10

Inventories

Answer 10

Raw materials, work process, and finish products that the venture hopes to sell.

Question 11

Fixed assets

Answer 11

Assets with expected lives of greater than one year.

Question 12

Depreciation

Answer 12

Production and value of a fixed asset over its expected life, intended to reflect the usage or wearing out of the asset.

Question 13

Accumulated depreciation

Answer 13

The sum of all previous depreciation amounts charge to fix assets.

Question 14

Other long-term assets

Answer 14

Intellectual property rides or intangible assets that can be patented or owned.

Question 15

Payables

Answer 15

Short term liabilities, go to suppliers for purchases made on credit.

Question 16

Accrued wages

Answer 16

Liabilities owed to employees were previously completed work.

Question 17

Bank loan

Answer 17

‘interest-bearing loan from the commercial bank.

Question 18

Other current liabilities

Answer 18

Catchall account that includes borrowing in the form of cash advances on credit cards.

Question 19

Long-term debts

Answer 19

Loans that have maturities of longer than one year.

Question 20

Capital leases

Answer 20

Long-term, non-cancelable leases, whereby the owner receives payments that cover the cost of equipment plus a return on investment in the equipment.

Question 21

Operating leases

Answer 21

Leases that provide maintenance in addition to financing and are also usually cancelable.

Question 22

Owners equity

Answer 22

Equity capital contributed by the owners of the business.

Question 23

Stockholders equity

Answer 23

Book value of owners equity in a corporation.

Question 24

Common stock account

Answer 24

Book value of ownership interest in a corporation.

Question 25

Additional paid in capital account

Answer 25

Additional book value of ownership interest in a corporation when the common stock has a par value.

Question 26

Retained earnings account

Answer 26

Accumulated profits or losses, retained in the business from operations.

Question 27

Income statement

Answer 27

Financial statement that reports to revenues generated and expenses incurred over an accounting period.

Question 28

Cost of good sold

Answer 28

Cost of materials and labor encourage to produce the products that were sold.

Question 29

Gross earnings

Answer 29

Net sales minus the cost of production.

Question 30

Operating income

Answer 30

Also called earnings before interest and taxes (EBIT) the firms profit after all operating expenses, excluding financial cost, have been deducted from net sales.

Question 31

EBIT

Answer 31

Earnings before interest and taxes, also called operating income

Question 32

Net income or profit

Answer 32

Bottom line measure of what’s left from the firms net sales after operating expenses, financing cost, and taxes have been deducted.

Question 33

Statement of cash flows

Answer 33

Financial statement that shows how cash, as reflected in accrual accounting, flowed into an out of a company during any specific period of operation.

Question 34

Variable expenses

Answer 34

Cost or expenses that very directly with revenues.

Question 35

Fixed expenses

Answer 35

Cost that are expected to remain constant over a range of revenues for a specific time.

Question 36

EBITDA

Answer 36

Earnings before interest, taxes, depreciation, and amortization.

Question 37

EBDAT

Answer 37

Earnings before depreciation, amortization, and taxes.

Question 38

EBDAT breakeven

Answer 38

Amount of revenues needed to cover adventures, cash operating expenses.

Question 39

Cash flow break even

Answer 39

Cash flow at zero for a specific.(EBDAT=0)

Question 40

Survival revenues

Answer 40

Amount of revenues just of upsetting variable and cash fixed cost

Question 41

Contribution profit margin

Answer 41

Portion of the sale of a product that contributes to covering the cash fixed costs.