Question 1

Which of the following statements is true when setting up your accounting system?
A) Accounting needs are the same regardless of industry.
B) Even the smallest businesses need formal record keeping.
C) The actual task of setting up an accounting system is quite easy if you understand accounting a bit.
D) It is illegal to outsource your accounting system.

Accepted Answer

The answer of Which of the following statements is true...

Question 2

Which of the following accounting concepts has roots in the Mesopotamians who lived and kept records 5,000 years ago?
A) The business entity concept.
B) The accounting equation.
C) The going concern concept.
D) CVP analysis.

Accepted Answer

The accounting equation (assets = liabilities + equity) is believed to have originated with the ancient Mesopotamians, who used it to keep track of their trade and business transactions over 5,000 years ago. The other options listed did not originate during this time period.

Question 3

Which of the following ratios is used to estimate the liquidity of a business?
A) Inventory turnover ratio
B) Total assets to total liabilities ratio
C) Current ratio
D) Quick ratio

Accepted Answer

The answer of Which of the following ratios is used...

Question 4

Which of the following concepts assume that information flows from the income statement through the statement of retained earnings,the statement of owners' equity to the balance sheet?
A) Articulate concept
B) Going concern concept
C) Opportunity cost concept
D) Leveraging concept

Accepted Answer

The Articulate concept states that financial statements should be prepared in a logical and consistent manner, with the flow of information from one statement to another. Therefore, information flows from the income statement to the statement of retained earnings, then to the statement of owners' equity, and finally to the balance sheet. The other concepts listed do not relate to this specific flow of information.

Question 5

Which of the following accounting functions has been accurately described?
A) Investments records help produce accurate billing of customers,and thus help to maintain good customer relations.
B) Payroll records track if your business keeps surplus cash invested in securities.
C) Accounts payable records help to make timely payments in order to capture prompt pay discounts and to maintain a good credit rating for the business.
D) Credit card sales function enables that payroll and employment taxes are kept current.

Accepted Answer

Accounts payable records track the amount owed to vendors and suppliers and ensure that timely payments are made, which can help to capture prompt pay discounts and maintain a good credit rating for the business.

Question 6

_____ is a measure of how quickly a company can raise money through internal sources by converting assets to cash.
A) Absorbability
B) Equitability
C) Nominal value
D) Liquidity

Accepted Answer

Liquidity refers to a company's ability to quickly convert its assets to cash in order to meet short-term obligations. It is a measure of the company's financial stability and ability to withstand unforeseen events. A highly liquid company will have a large amount of cash or assets that can be easily converted to cash, whereas a company with low liquidity may struggle to raise funds quickly in times of need.

Question 7

Lenders use operating income as:
A) a measure of how well management achieved sales.
B) an indication of future sales.
C) a measure of how much debt a business can support.
D) an indication of a business's ability to control costs.

Accepted Answer

Lenders use operating income as a measure of how much debt a business can support. Operating income shows the amount of profit a business generates before interest and taxes are deducted. Lenders want to know how much debt a business can handle before it becomes risky or unable to meet its financial obligations. Therefore, operating income is a key measure that lenders consider when determining whether to extend a loan or credit to a business.

Question 8

Which of the following is a difficulty that arises in understanding and interpreting the income statements?
A) There is difficulty deciding whether to report the revenues.
B) There is difficulty deciding what should be considered as expenses.
C) There are disputes over when to recognize revenues.
D) There are disputes over the preferred tax rate to incorporate.

Accepted Answer

There are disputes over when to recognize revenues.

Question 9

Which of the following statements concerning the income statement is true?
A) The income statement is only used internally by the owners.
B) The characteristics that sometimes make the income statement hard to understand also provide temptation to "fudge" the numbers.
C) The income statement is also called the statement of financial position.
D) Values listed on the income statement are historical values.

Accepted Answer

The statement is true because the income statement can be difficult to understand due to its complexity and the temptation to manipulate the numbers for personal gain.

Question 10

The rule of thumb for evaluating current ratio is that the minimum acceptable ratio is:
A) 3.0.
B) 1.0.
C) 2.0.
D) 4.0.

Accepted Answer

The minimum acceptable current ratio is generally considered to be 2.0, indicating that a company has twice as many current assets as current liabilities, which suggests good short-term financial health.

Question 11

_____ is the most used item on the income statement.
A) Net income
B) Cost of sale
C) Revenue
D) Operating income

Accepted Answer

The answer of _____ is the most used item on...

Question 12

Most investors and all banks expect to be provided financial statements that meet the rules of _______.
A) generally accepted accounting principles or GAAP
B) managerial accounting principles
C) the business entity concept
D) financial flexibility

Accepted Answer

Most investors and banks expect financial statements to meet the rules of generally accepted accounting principles (GAAP), which are the standard accounting guidelines followed by businesses in the United States. GAAP provide a common language and standardization for financial statements, making it easier for investors and lenders to compare companies and make informed decisions. Managerial accounting principles are focused on internal decision-making and are not usually relevant to external investors and lenders. The business entity concept is a foundational accounting principle that assumes a business is separate from its owners, but it does not dictate specific financial statement requirements. Financial flexibility is not a set of accounting principles but rather a financial goal.

Question 13

In the context of accounting functions,which of the following is true of accounts receivable?
A) It tracks what one owes and helps to make timely payments.
B) It is independent of the extension of credit.
C) It records all checks written and payments made.
D) It records provision of credit to customers.

Accepted Answer

Accounts receivable tracks the money that is owed by customers who have received credit, therefore it records the provision of credit to customers. Option A is incorrect as it refers to accounts payable, which tracks what a company owes to its vendors. Option B is incorrect as accounts receivable is dependent on the extension of credit to customers. Option C is incorrect as it refers to the function of a bank account, not accounts receivable.

Question 14

Formal summaries of the content of an accounting system's records of transactions are called _____.
A) financial securities
B) financial instruments
C) financial statements
D) financial derivatives

Accepted Answer

Formal summaries of the content of an accounting system's records of transactions are called financial statements. Financial securities, financial instruments, and financial derivatives are all distinct types of financial products, but they are not used to summarize accounting records.

Question 15

Which of the following is true of financial statements?
A) The customization of financial reports is illegal in all states.
B) The overall content and form of financial statements have been made standard by long usage.
C) Bankers and investors are typically new and unacquainted with standard financial statements.
D) The differences unique to each industry cannot be represented accurately in financial statements.

Accepted Answer

The overall content and form of financial statements have been made standard by long usage, and are generally accepted and understood by bankers, investors, and others who regularly use them. Customization of financial reports is not illegal, but any changes or adjustments made should be clearly disclosed to ensure transparency and accuracy. While differences do exist between industries, financial statements can still accurately represent and provide insight into the financial health and performance of a company within its specific industry.

Question 16

The sum of all profits and losses,less all dividends paid since the beginning of the business is called:
A) liabilities.
B) retained earnings.
C) net income.
D) tax liability.

Accepted Answer

The sum of all profits and losses, less all dividends paid since the beginning of the business is called retained earnings. It is a part of owner's equity and represents the accumulated profits of the business that have not been distributed to the owners in the form of dividends. It is not the same as net income, which is the difference between total revenues and total expenses in a given period of time, such as a year. Liabilities represent amounts owed to creditors and tax liability is the amount of taxes owed to the government.

Question 17

_____ is an indicator of the business's ability to manage cash flows so that the company has the fiscal ability to respond appropriately if an unexpected opportunity or problem arises.
A) Liquidity
B) Financial flexibility
C) Absorbability
D) Equitability

Accepted Answer

Financial flexibility is the ability of a business to manage its cash flows effectively to enable it to respond to unforeseen events or opportunities. This capability is necessary for a company to remain competitive and to survive in the long term. It allows a business to take advantage of new opportunities or to respond to unexpected problems without compromising its financial stability.

Question 18

Which of the following is a statement of what a business owns,what it owes to others,and how much value the owners have invested in it?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of retained earnings

Accepted Answer

A balance sheet is a financial statement that presents a company's financial position at a specific point in time by showing what the business owns (assets), what it owes to others (liabilities), and how much value the owners have invested in it (equity). The other financial statements listed (income statement, cash flow statement, statement of retained earnings) do not provide this information.

Question 19

Which of the following statements lists revenues and expenses and shows the amount of profit a business makes for a specified period of time?
A) Balance sheet
B) Statement of retained earnings
C) Income statement
D) Cash flow statement

Accepted Answer

The income statement lists revenues and expenses and calculates the net profit or loss for a specific period of time, such as a month or year. The balance sheet reports a company's assets, liabilities, and equity at a specific point in time, the statement of retained earnings shows changes in a company's retained earnings balance, and the cash flow statement reports inflows and outflows of cash during a specific period of time.

Question 20

_____ refers to the ability of a business to survive adverse financial events.
A) Liquidity
B) Financial flexibility
C) Financial strength
D) Profitability

Accepted Answer

Financial strength refers to the ability of a business to withstand adverse financial events and continue operations.

Quiz 12: Small Business Accounting: Projecting and Evaluating Performance

Which of the following statements is true when setting up your accounting system?

Which of the following accounting concepts has roots in the Mesopotamians who lived and kept records 5,000 years ago?

Which of the following ratios is used to estimate the liquidity of a business?

Which of the following concepts assume that information flows from the income statement through the statement of retained earnings,the statement of owners' equity to the balance sheet?

Which of the following accounting functions has been accurately described?

_____ is a measure of how quickly a company can raise money through internal sources by converting assets to cash.

Lenders use operating income as:

Which of the following is a difficulty that arises in understanding and interpreting the income statements?

Which of the following statements concerning the income statement is true?

The rule of thumb for evaluating current ratio is that the minimum acceptable ratio is:

_____ is the most used item on the income statement.

Most investors and all banks expect to be provided financial statements that meet the rules of _______.

In the context of accounting functions,which of the following is true of accounts receivable?

Formal summaries of the content of an accounting system's records of transactions are called _____.

Which of the following is true of financial statements?

The sum of all profits and losses,less all dividends paid since the beginning of the business is called:

_____ is an indicator of the business's ability to manage cash flows so that the company has the fiscal ability to respond appropriately if an unexpected opportunity or problem arises.

Which of the following is a statement of what a business owns,what it owes to others,and how much value the owners have invested in it?

Which of the following statements lists revenues and expenses and shows the amount of profit a business makes for a specified period of time?

_____ refers to the ability of a business to survive adverse financial events.