WorksheetsChapter 9: Plan and Track Your Finances
Total questions: 72
Worksheet time: 36mins
Which of the following is considered a startup cost for a business?
Rent for the first year of operation
Employee training programs
Computers, printers, telephones, and paper
Marketing and advertising expenses
In financial statements, what does net worth represent?
The total amount of money the business has in the bank
The difference between assets and liabilities
The annual profit of the business
The total value of the business's stock in the market
What is Equity Financing?
The act of borrowing money from a bank to be repaid at a future date.
The process of raising capital through the sale of shares.
The method of reinvesting profits back into the business.
The practice of obtaining government grants for business operations.
What happens when a business sells shares in the context of Equity Financing?
The business takes on debt to be repaid with interest.
The business leases its assets to another company.
The business effectively sells ownership of its company in return for cash.
The business merges with another company to increase capital.
What is Debt Financing?
The process of raising capital through the sale of shares.
The act of reinvesting profits back into the business.
The act of raising capital by borrowing money from a lender or a bank.
The method of obtaining funds through business partnerships.
What does the debt-to-equity ratio represent in business financing?
The amount of equity compared to the company's assets
The relation between the dollars borrowed (debt) and the dollars invested in your business (equity)
The total revenue of a company divided by its total debt
The percentage of company shares distributed to shareholders
How is the debt-to-equity ratio calculated?
Total Equity ÷ Total Liabilities
Total Assets ÷ Total Equity
Total Liabilities ÷ Total Equity
Total Revenue ÷ Total Debt
What does a high debt-to-equity ratio indicate about a business's financing?
The business is mostly financed through equity.
The business has no debt.
The business is mostly financed through debt.
The business is not suitable for investment.
How is the debt-to-equity ratio calculated?
Total Equity ÷ Total Liabilities
Total Liabilities + Total Equity
Total Liabilities ÷ Total Equity
Total Assets ÷ Total Liabilities
What do lenders and investors usually prefer when assessing the risk based on the debt-to-equity ratio?
High debt-to-equity ratios
Low debt-to-equity ratios
Equal debt-to-equity ratios
No debt-to-equity ratios
What does a low debt-to-equity ratio indicate about a business's financing?
The business is mostly financed through debt.
The business is mostly financed through equity.
The business has a balanced financing structure.
The business is over-leveraged.
What is equity capital?
A loan taken from a bank to start a business
Money invested in a business in return for a share in the profits of the business
Government grants provided to support small businesses
Revenue generated from the sales of a business
What is the term used when you personally invest a small amount of capital to start and build a company?
Crowdfunding
Angel investing
Bootstrapping
Venture capital
Which of the following is a source of equity financing?
Credit cards
Friends and Relatives
Bank loans
Corporate bonds
Who typically makes a living by investing in startup companies?
Bankers
Venture Capitalists
Government agencies
Non-profit organizations
What is debt capital?
Equity shared among business partners
Investment in the form of stocks
Money loaned to a business to be repaid within a certain time period, usually with interest
Revenue generated from sales
What is collateral in the context of secured loans from commercial banks?
A fee charged for a loan program
The total value of accounts receivable
Property that the borrower forfeits if he or she defaults on the loan
A business's inventory used for a loan
What is a line of credit?
A loan payable within one year
A loan program for which banks charge a fee and interest, regardless of money borrowed
A loan payable over a period longer than a year
A bank's loan of up to 85 percent of the total value of accounts receivable
What is the difference between a long-term loan and a short-term loan?
A long-term loan is payable within one year, while a short-term loan is payable over a period longer than a year
A long-term loan uses inventory as collateral, while a short-term loan uses accounts receivable
A long-term loan is payable over a period longer than a year, while a short-term loan is payable within one year
There is no difference; both are types of lines of credit
What are unsecured loans?
Loans guaranteed with collateral
Loans not guaranteed with collateral
Loans given to new employees
Loans with high interest rates
Which of the following is NOT a reason a bank may refuse to lend money?
The business is a startup
The borrower has a solid business plan
There is a lack of adequate experience
There is inadequate investment
What is a cash flow statement?
A. A legal document that outlines company ownership
B. An accounting report that describes the way cash flows into and out of your business over a period of time
C. A summary of employee salaries and wages
D. A marketing plan for future business strategies
How do you determine the net cash flow ?
A. Cash Receipts + Cash Disbursements
B. Cash Receipts / Cash Disbursements
C. Cash Receipts - Cash Disbursements
D. Cash Disbursements - Cash Receipts
Which of the following is included in cash receipts?
Payments for COG
Rent
Tax refunds
Insurance
What is considered a cash disbursement?
Collected accounts receivable
Funds from bank loans
Salaries
Cash sales
Cash receipts can come from all of the following sources except:
Funds from bank loans and investors
Collected accounts receivable
Office supplies
Cash sales
What does an income statement show?
The business's assets and liabilities
The business's revenues and expenses over a period of time and the resulting profit or loss
The business's investment strategies
The business's market share and competition
What is another name for an income statement?
Balance Sheet
Cash Flow Statement
Profit & Loss
Equity Statement
What is one of the purposes of an Income Statement?
To calculate the interest rate on business loans
To examine how sales, expenses, and income are changing over time
To create a list of employees in a company
To design a new marketing strategy for a product
What can an Income Statement help a business owner do regarding future business performance?
Predict competitor's sales figures
Choose a new business location
Forecast how well your business can expect to perform in the future
Decide on new products to develop
What is a specific use of an Income Statement in managing expenditures?
To identify categories of expenditures you may want to increase or decrease, such as advertising
To eliminate all unnecessary business meetings
To calculate employee bonuses
To determine the number of new hires for the year
What is revenue in the context of an income statement?
The costs necessary to operate a business
The difference between revenue and cost of goods sold
The money that a company receives from its normal business operations
The cost of the inventory that a business sells during a particular period
What does 'cost of goods sold' refer to?
The difference between revenue and cost of goods sold
The money that a company receives from its normal business operations
The costs necessary to operate a business
The cost of the inventory that a business sells during a particular period
How is gross profit calculated?
Revenue minus operating expenses
Operating expenses minus cost of goods sold
The money that a company receives from its normal business operations
The difference between revenue and cost of goods sold
Which of the following are included in operating expenses?
Salaries, rent, utilities, advertising, insurance, supplies
Revenue, cost of goods sold, gross profit
The money that a company receives from its normal business operations
The cost of the inventory that a business sells during a particular period
What does the net income before taxes represent on the income statement?
The amount after taxes are subtracted from revenue
The total revenue generated by sales
The amount remaining after cost of goods sold and operating expenses are subtracted from revenue
The total amount of taxes paid during the period
What is the result called after taxes are subtracted on the income statement?
Gross income
Operating income
Net income/loss after taxes
Revenue after taxes
What is a Balance Sheet?
A) A financial statement that lists the expenses of a business.
B) A financial statement that lists what a business owns, what it owes, and how much it is worth at a particular point in time.
C) A document that outlines the employee structure of a business.
D) A report that details the company's yearly sales.
Which equation correctly represents a Balance Sheet?
A) Assets = Liabilities - Owner’s Equity
B) Assets + Liabilities = Owner’s Equity
C) Assets = Liabilities + Owner’s Equity
D) Assets - Liabilities = Owner’s Equity
What are considered assets in a business?
A) Loans and outstanding invoices.
B) Cash, equipment, and inventory.
C) Amounts that a business owes to others.
D) The amount remaining after the value of all liabilities is subtracted from the value of all assets.
What does liabilities mean in the context of a Balance Sheet?
A) The amount remaining after the value of all liabilities is subtracted from the value of all assets.
B) Items of value owned by a business.
C) Amounts that a business owes to others.
D) The total amount of money that a business has earned.
What is Owner’s equity?
A) The total assets of a business.
B) The total liabilities of a business.
C) The amount remaining after the value of all liabilities is subtracted from the value of all assets.
D) The amount of money invested by the owners into the business.
What are current assets also known as?
Fixed Assets
Liquid Assets
Illiquid Assets
Tangible Assets
What is an example of a current asset?
Machinery
Buildings
Accounts receivable
Patents
Can fixed assets be easily converted to cash?
Yes, they can be easily converted to cash
No, they cannot be easily converted to cash
Yes, but only during a financial crisis
No, they can only be converted through a lengthy legal process
What are long-term liabilities?
Debts that are due to be paid in full in less than a year.
Debts that are payable over a year or longer.
Amounts owed to vendors for merchandise purchased on credit.
Assets that can be converted into cash within a year.
Which of the following is an example of a long-term liability?
Accounts payable
Mortgage
Inventory
Cash on hand
What are current liabilities?
Debts that are due to be paid in full in less than a year.
Debts that are payable over a year or longer.
Amounts owed to vendors for merchandise purchased on credit.
Assets that can be converted into cash within a year.
What is an example of a current liability?
Mortgage
Accounts payable
Long-term loans
Investments
What is the term used for the amount that a company estimates it will not receive from customers for credit purchases?
Depreciation
Asset reduction
Allowance for uncollectible accounts
Credit loss
What is the process called when the value of business equipment is reduced over time to reflect its current worth?
Amortization
Appreciation
Depreciation
Devaluation
Why should estimates for uncollectible accounts and depreciation be included in the balance sheet?
To increase the company's net worth
To reflect the actual cash flow
To ensure the balance sheet provides an accurate picture of the business's net worth
To calculate the company's market share
When using the cash method of accounting, when is revenue recorded?
When the order is placed
When the money is actually received
When the item is delivered
When the service is provided
In the accrual method of accounting, when are transactions recorded?
When the money is actually received or paid
When the service is provided, regardless of when the money is received
Before the order is placed
After the money is received and expenses are paid
Which accounting method does not report expenses that have been incurred but not yet paid and revenue that has been earned but not yet received?
Accrual method
Cash method
Depreciation method
Allocation method
Why is the accrual method preferred by most companies?
It simplifies the accounting process
It is easier to implement than other methods
It offers a better picture of long-term profitability
It requires less documentation
Under which condition must a business use the accrual accounting method?
It has sales of more than $500,000 a year
It has sales of more than $5 million a year
It has an inventory of items that will never be sold to the public
It has sales over $1 million and does not stock any inventory
What is a transaction in business?
A document that records financial information
Any business activity that changes assets, liabilities, or net worth
A type of business ownership
A legal agreement between two parties
What are journals in the context of accounting?
Books where business meetings are recorded
Accounting records of the transactions you make
Summaries of a company's financial status
Guides for financial decision-making
What is the purpose of a sales journal?
To record only cash payment transactions.
To record only cash receipt transactions.
To record only sales of merchandise on account.
To record all types of transactions.
What does it mean when merchandise is sold on account?
The customer pays in cash immediately.
The customer receives goods or services now and will pay for them later.
The transaction is recorded in the cash payments journal.
The sales are made in electronic payment only.
Which journal is used to record only cash payment transactions?
Sales journal
Cash payments journal
Cash receipts journal
General ledger
What types of payments are recorded in the cash payments journal?
Sales on account
Credit transactions
Cash, check, or electronic payment transactions
Cash receipts only
What is recorded in the cash receipts journal?
Only electronic payment transactions
Only cash payment transactions
Cash sales and cash payments received from customers on their credit accounts
All types of sales transactions
What is the purpose of a purchases journal?
To record any kind of transaction.
To record only purchases of merchandise on account.
To record all transactions, including sales and services.
To record transactions that do not fit in the other four journals.
When should a transaction be recorded in the general journal according to the text?
When it involves purchasing merchandise on account.
When it involves receiving supplies and paying for them later.
When it is a transaction that does not fit in the other four journals.
When it is a transaction that involves sales of merchandise only.
What is the purpose of an account in ledgers?
To record the company's investment strategies
To provide financial detail for a particular business item such as cash, sales, rent, and utilities
To list the employees in a company
To track the company's yearly profits
What are subsidiary ledgers used for?
To manage the company's stock options
To record the minutes of meetings
To track accounts receivable
To calculate the depreciation of assets
What is the function of aging tables in the context of recording transactions?
To determine the market value of the company's assets
To recordkeeping tool for tracking accounts receivable
To schedule the company's future investments
To organize the company's product inventory
What is a check register?
A booklet used to record the dates and amounts of checks as well as the names of people or businesses to whom you have written checks
A digital system that automatically records all transactions in your bank account
A government database that tracks all issued checks for tax purposes
A ledger where businesses record their daily sales and expenses
What is payroll?
A tax form submitted annually
A list of people who receive salary or wage payments from a business
A type of business license
A record of sales transactions
What items are typically included in a payroll register?
Employee names and addresses
Regular/Overtime earnings, Social/Medicare Contributions, Federal/State Income Tax
Inventory records and supplier information
Customer feedback and complaints
