Deck 18: Financial Management

Question 1

While finance is a critical activity for profit-seeking organizations, by definition nonprofit organizations are not required to fulfill the finance function.

Answer 1

False

Question 2

A comptroller is the chief accounting officer of an organization.

Answer 2

True

Question 3

Financial managers use data prepared by accountants to develop strategies for improving the financial performance of the firm.

Answer 3

True

Question 4

Managing a firm's resources so that it can meet its goals and objectives is the goal of financial accounting.

Question 5

Financial managers are responsible for budgeting, auditing, and advising top management on financial matters.

Question 6

A comptroller is responsible for the acquiring and managing of funds for an organization.

Question 7

Undercapitalization refers to the problem of insufficient start-up funds.

Question 8

Investors and entrepreneurs should have an understanding of financial issues.

Question 9

Financial managers are responsible for controlling cash flows.

Question 10

One of the most common ways for a firm to fail financially is poor control over cash flow.

Question 11

Financial management is more important for a large firm than it is for a small firm.

Question 12

Inability to attract and retain qualified employees is one of the most common ways for a firm to fail financially.

Question 13

The chief financial officer of a company is responsible for managing cash, accounts receivable, and inventory.

Question 14

Finance is the function in a business that acquires funds for the firm and manages those funds within the firm.

Question 15

A financial manager makes recommendations to top executives regarding strategies for improving the financial strength of a firm.

Question 16

Inadequate control of expenses represents a common financial problem that contributes to business failure.

Question 17

Financial managers examine the data prepared by accountants and make recommendations to top management regarding strategies for improving the financial performance of the company.

Question 18

The duties and responsibilities of a financial manager are virtually identical to the duties and responsibilities of an accountant.

Question 19

There is actually a stronger relationship between finance and marketing than there is between finance and accounting.

Question 20

The chief financial officer (CFO) is responsible for accounting and financial functions.

Question 21

Melanie, a financial manager, holds responsibilities that include the interpretation of financial statements provided by the firm's accountants and the preparation of recommendations to top management.

Question 22

The importance of financial managers to firms with large cash inflows is greater than for firms with smaller cash flows.

Question 23

Tax payments are important to the finance manager because they represent a cash inflow to a firm.

Question 24

One step in the financial planning process is to establish financial control procedures that allow managers to monitor the organization's performance.

Question 25

A firm's short-term financial forecast provides a projected sales estimate.

Question 26

Inadequate expense control typically occurs as a result of undercapitalization.

Question 27

Financial managers are responsible for the management of accounts receivable and accounts payable.

Question 28

Financial managers are responsible for buying merchandise on credit and collecting payment from accounts receivable.

Question 29

A firm's most recent financial statements often serve as the basis for predicting future sales, costs, and expenses.

Question 30

An internal auditor is responsible for paying the company's bills and collecting overdue payments from customers.

Question 31

Ivy has always loved designing and tending to gardens, and now she's a master gardener in charge at a large botanical garden. Ivy requires her staff to pursue continuing education and, because it's an area where she is weak, she is enrolling in two courses-accounting and finance-at the local community college. This is a good plan, especially since she is the boss.

Question 32

Generally accepted accounting principles require that any assessment of a firm's financial statements be performed by independent outside auditors.

Question 33

Tax management by financial managers involves the development of strategies to evade tax liabilities.

Question 34

The overall objective of financial planning is to optimize the firm's profitability and make the best use of its money.

Question 35

Jason manages credit and collections at Barkatorium Pet Supplies. He is responsible for accounts receivable and accounts payable. These activities suggest that Jason's job is in financial management.

Question 36

The primary focus of a cash flow forecast is the firm's revenue and costs for the current operating period.

Question 37

Accountants truly represent the financial managers of a business.

Question 38

A firm's short-term forecast helps top management in preparing a company budget.

Question 39

To be effective, an internal auditor must be critical of any improprieties or deficiencies found in the financial activities of the firm.

Question 40

The first step in financial planning is to develop a budget to better control costs.

Question 41

Financial control is a process where firms compare actual revenues and costs with budgeted revenues and costs.

Question 42

The operating (master) budget identifies the funds (and the allocation of those funds) required to operate a business at a projected level of revenue.

Question 43

An operating budget analyzes the firm's spending plans for long-lasting assets that require large sums of money.

Question 44

A capital budget highlights a firm's spending plans for major assets, such as property, buildings, and equipment.

Question 45

The long-term financial forecast plays a crucial part in the company's long-term strategic plan.

Question 46

Forecasting means determining how closely the actual revenue and expense results matched up with the predicted revenues and expenses.

Question 47

The long-term financial forecast gives top management some sense of the profit potential of various strategic decisions.

Question 48

A capital budget combines all of the other budgets into one detailed plan for monitoring the operations of the firm.

Question 49

By identifying variances from the financial plan, managers are able to focus on those departments that require corrective action.

Question 50

A cash budget helps managers anticipate borrowing, debt repayment, operating expenses, and short-term investment opportunities.

Question 51

Budgets are prepared after the financial forecasts are developed.

Question 52

The main objective of financial control is to establish priorities for the purchase of plant and equipment.

Question 53

A capital budget highlights the expected funds provided by owner investments.

Question 54

Since short-term financial forecasts predict expected future events, they should not be influenced by recent financial statements.

Question 55

A company's capital budget helps management plan for cash shortages or surpluses.

Question 56

A budget's primary purpose is to provide managers with a financial summary of past operations.

Question 57

To be effective, budgets are prepared independently of organizational forecasts.

Question 58

Portable Pet Care plans to purchase a second mobile veterinary clinic next year that will cost an estimated $95,000. The finance manager will include this projected purchase in the company's capital budget.

Question 59

Budgets assist managers in performing the functions of planning and control.

Question 60

A budget reflects management's expectations for revenues and allocates the use of specific resources throughout the firm.

Question 61

With added competition, firms prefer not to offer the availability of credit sales to their customers.

Question 62

When a firm is owed money, the financial manager tries to collect as early as possible.

Question 63

Sound financial management involves determining the most appropriate sources of funds to meet short-term and long-term needs of an organization.

Question 64

To improve cash flow and profitability, effective managers attempt to minimize the firm's investment in inventory.

Question 65

Finance managers need funds for capital purchases, but seldom for the day-to-day operations.

Question 66

Gavin, a financial manager of a small firm, needs to determine how much his company will have to borrow in the coming months. He also needs to establish when the borrowed funds will be needed. The preparation of the cash budget will help.

Question 67

The cost to a retailer of accepting credit cards is generally greater than the benefits provided.

Question 68

Acquiring and storing inventory represents a sizable expenditure for many businesses.

Question 69

The concept of the time value of money is based on the interest-earning power of money.

Question 70

Portable Pet Care, Inc., a mobile veterinary clinic, is planning for the future. The company owners (two seasoned veterinarians) have brought together the vice president of marketing and the director of information systems to talk about their expansion campaign, "We come to you!" The talks are in the preliminary stages, so there is no need to concern the finance team at this time because cash flow is currently not a problem.

Question 71

Accepting credit cards, such as MasterCard or Visa, enables a firm to decrease the expense of extending credit to customers.

Question 72

Snowy Mountain Ski Lodge's cash budget for the month of March 2019 shows a negative amount. Due to the fact that the months of January and February were quite lucrative and showed positive amounts, the finance manager will not borrow any money in the short term to cover for March's deficit.

Question 73

While firms finance their long-term needs with debt financing, their short-term needs are served by equity financing.

Question 74

Short-term financing refers to borrowed funds that must be repaid in a year or less.

Question 75

Lydia is a financial manager with Securitas Financial. She regularly compares actual revenues and expenses against their projected values. After identifying areas with significant deviations from planned values, she investigates to find the cause of these variances. Lydia's activities represent the steps involved in the preparation of Securitas's capital budget.

Question 76

Snowy Mountain Ski Lodge owners know that the lifts on the north slope will need replacing in the next two years. Three months prior to replacement, they will include the expenditure in their cash budget.

Question 77

Capital expenditures are major investments in long-term assets such as property and equipment.

Question 78

Effective financial managers evaluate customers' ability to pay for merchandise purchased on credit.

Question 79

One very important responsibility of the finance department in both large and small businesses involves acquiring needed funds to operate the business.

Question 80

Financial managers generally oppose credit sales because of the impact on cash flows.