Chapter 12 Review

True or False If expenses are less than revenue, the business will suffer a loss False

True or False Managers are usually held accountable if their part of the company faces financial problems. True

True or False With direct deposit, an employer transfers net pay electronically into an employee’s bank account. True

True or false There is no point in comparing your financial statements with those of another company. false

True or false Budgeting is much easier for a new business than for a well-established business. False

True or false explaining the budget to people who need financial information to make decision sis the first step of the business budgeting process. false

True or false The net income ratio will show the rate of return the owners are getting on the money they invested in the company. false

True or false Records of accounts identify all purchases and sales made using credit. true

True or false Because they are so vital to businesses, financial records are still usually prepared manually using paper documents. false

True or false A payroll is the financial record of employee compensation, deductions, and net pay. true

Multiple choice An earnings report includes (a) the number of sick days an employee has available (b) the employee’s job title (c) the amount of deductions for the current pay period (d) all of the above. C

All of the following are fixed assets EXCEPT (a) land (b) inventory (c) expensive technology (d) all of the above are fixed assets. B

The main source of financial information established businesses use to prepare a budget is (a) the company financial records (b) Small Business Administration (c) The Wall Street Journal (d) accountants and bankers. A

This is an estimate of the actual money a business received and paid out for a specific period. (a) start-up budget (b) operating budget (c) short-term budget (d) cash budget. D

Which of the following payroll deductions is NOT a payroll tax? (a) income tax (b) Social Security and Medicare (c) health insurance (d) unemployment tax. C

Liabilities are (a) what a company owes (b) the value of the owners’ investment in the company (c) what a company owns (d) what a company has on hand to sell. A

A company’s liabilities divided by the owner’s equity is the (a) current ratio (b) debt to equity ratio (c) return on equity ratio (d) net income ratio. B

Identifies the companies from which credit purchase were made. (a) cash record (b) payroll record (c) accounts payable record. (d) accounts receivable record. C

If a budget contains several discrepancies, the LAST adjustment that managers should attempt is to (a) find ways to increase revenue (b) redo the budget (c) seek ways to cut expenses (d) double-check their calculations. B

A company’s sales and profits for a specific period are listed in the company’s (a) income statement (b) operating budget (c) balance sheet (d) cash budget. A

WHAT IS THE BASIC FINANCIAL EQUATION? Revenue – expenses = profit or loss

Discrepancies are differences between the: Actual and Budged performance

The form used to track each employee’s pay history is what? Payroll record

What compares a company’s financial elements that indicate how well the business is doing? Financial performance ratios

Assets, liabilities, and owner’s equity for a specific date are listed on which financial statement? Balance sheet

All income that a business receives over a period of time revenue

Records that identify the type and number of products on hand for sale. Inventory records

Records that contain information on all employees, their compensations and benefits. Payroll records

Cash and items that can readily be converted to cash. Current assets

Records that name the buildings and equipment owned by the business. Asset records

The costs of operating a business expenses

Ratio that tells you how much the business is relying on money borrowed from others. Debit to equity ratio

Ratio that tell you if the business can pay its debts when they become due. Current ratio

Amounts a company will pay off within a year. Current liabilities

Refers to income taxes, social security, medicare, and unemployment taxes. Payroll taxes