Ch8 – Test Bank + Answers | Accounting Records and Financial - Small Business Competitive Advantage 7e Test Bank by Timothy S. Hatten. DOCX document preview.
Test Bank
Chapter 8: Accounting Records and Financial Statements
Multiple Choice
1. The current ratio ______.
a. shows the current level of profits
b. shows the current ratio of sales to profits
c. shows the ratio of debt to profits
d. shows the firm’s ability to cover its current liabilities with its current assets
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Information technology
2. The system within a business for converting raw data from source documents (like invoices, sales receipts, bills, and checks) into information that will help a manager make business decisions is known as a/an ______.
a. computer system
b. accounting system
c. record system
d. data system
KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.1: Small Business Accounting
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
3. Most of the mismanagement decisions that cause small businesses to fail are related to ______.
a. inventory
b. personnel
c. finance
d. sales
KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.1: Small Business Accounting
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
4. At Wilson’s Wash and Go, business managers ensure that all financial transactions are recorded in chronological order. These transactions are then classified by type. This example specifically involves which two areas of the accounting process?
a. journals and ratios
b. ledgers and financial statements
c. ratios and financial statements
d. journals and ledgers
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Reflective thinking
5. ______ refers to what the business owes.
a. Debit
b. Asset
c. Owner’s equity
d. Liability
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
6. ______ refers to what the business owner has invested in the business.
a. Debit
b. Asset
c. Equity
d. Liability
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
7. An accounting system in which every business transaction is recorded in an asset account, a liability account, or an owner’s equity account in order for the system to balance is known as which of the following?
a. double-entry accounting
b. open-book accounting
c. managerial accounting
d. cost accounting
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
8. In double-entry accounting systems, debits must always equal ______.
a. assets
b. liabilities
c. credits
d. owner’s equity
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
9. Double-entry accounting systems revolve around all but which of the following types of accounts?
a. asset
b. liabilities
c. owner’s equity
d. expense
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
10. Single-entry accounting systems record the flow of income and expenses in a running log and allow the small business owner to produce ______.
a. an income statement
b. a balance sheet
c. a statement of cash flows
d. monthly statements
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
11. In the accounting equation, Assets = Liabilities + ______.
a. Revenue
b. Expenses
c. Equity
d. Cash flow
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
12. In the accounting equation, Cash Flow = Receipts − ______.
a. Revenue
b. Expenses
c. Equity
d. Disbursements
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
13. “Profit = Revenue − Expenses” represents the activity described in the ______.
a. income statement
b. balance sheet
c. cash flow statement
d. quick ratio
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
14. At Fran’s Floral, Fran records transactions when cash is actually received and when expenses are actually paid. This is referred to as the ______ method of accounting.
a. accrual-basis
b. cash-basis
c. liquidity-basis
d. profit-basis
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Reflective thinking
15. A summary book for recording all transactions and account balances is referred to as a/an ______.
a. general ledger
b. balance sheet
c. journal
d. income statement
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
16. A method of accounting in which income or expenses are recorded at the time they are incurred, rather than when they are paid, is called ______.
a. accrual basis
b. cash basis
c. time basis
d. expense basis
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
17. A small business owner should not use the cash basis if ______.
a. the business extends credit
b. the business has high debt
c. the business has low sales
d. the business has increasing expenses
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
18. The accounting standards that have been established so all businesses produce comparable financial statements are known as which of the following?
a. GAAP
b. FASB
c. GANTT
d. GAT
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
19. The financial record that summarizes the income and expenses of the business over time is the ______.
a. income statement
b. balance sheet
c. statement of retained earnings
d. statement of cash flows
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
20. A financial statement that includes a percentage breakdown of each item is known as which of the following?
a. income statement
b. common-size financial statement
c. statement of retained earnings
d. statement of cash flows
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
21. A financial statement that shows a firm’s assets, liabilities, and owner’s equity is called a/an ______.
a. income statement
b. common-size financial statement
c. balance sheet
d. statement of cash flows
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
22. A financial statement that shows the cash inflows and outflows of a business is called a/an ______.
a. income statement
b. common-size financial statement
c. balance sheet
d. statement of cash flows
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
23. Financial statements that project what a firm’s financial condition will be in the future are known as ______.
a. pro forma financial statements
b. common-size financial statements
c. balance sheets
d. statements of cash flows
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
24. ______ are either full or partial estimates, since projections are being made as opposed to recording actual transactions.
a. Income statements
b. Common-size financial statements
c. Pro forma financial statements
d. Statements of cash flows
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
25. When more cash is going out of a business than is coming in, this is referred to as ______.
a. cash turnover ratio
b. profit
c. negative cash flow
d. being “in-the-black”
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
26. Elvira is considering purchasing a new truck for her distribution company. To better evaluate such a financial risk, she makes projections about what her company’s financial condition will be like in the future if a new truck is purchased. This is referred to as a/an ______.
a. business cycle balance sheet
b. common-size financial statement
c. statement of current cash flow
d. pro forma financial statement
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Reflective thinking
27. Which of the following financial actions should be made on a weekly basis by a small business manager?
a. check your cash balance on hand
b. note especially slow-paying accounts
c. record any money paid out
d. review federal tax requirements
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
28. Which of the following financial actions should be made on a monthly basis by a small business manager?
a. check your cash balance on hand
b. note especially slow-paying accounts
c. calculate payroll
d. review your income statement
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
29. Which of the following is not a major category of financial ratios?
a. equity
b. leverage
c. activity
d. profitability
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
30. Benchmark analysis compares firms to ______.
a. industry averages
b. lagging competitors
c. industry leaders
d. their own past performance
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
31. Calculations that compare the important financial aspects of a business are called ______.
a. financial ratios
b. overview ratios
c. accounting ratios
d. analytical thinking ratios
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
32. ______ analysis involves comparing firms’ financial ratios to the industry averages.
a. Industry average
b. Benchmarking
c. Competitive average
d. Trend
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
33. Each year, managers at Super Socks compare their current financial ratios with the numbers from the previous two years. This is referred to as what kind of analysis?
a. industry average analysis
b. benchmarking analysis
c. time continuum analysis
d. trend analysis
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Reflective thinking
34. The ratios used to measure a firm’s ability to meet its short-term obligations to creditors as they come due are called ______.
a. liquidity ratios
b. activity ratios
c. leverage ratios
d. profitability ratios
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
35. Which of the following ratios measures the number of times the firm can cover its current liabilities with its current assets?
a. current ratio
b. quick ratio
c. debt ratio
d. return on assets
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
36. Harry’s Home Services has current liabilities of $450,000, current assets of $500,000, and profits of $80,000. Which of the following is the current ratio for Harry’s business?
a. 0.17
b. 0.9
c. 1.11
d. 16
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Reflective thinking
37. Current ratios of 1.0 or less are considered ______.
a. to show excessive liquidity
b. low and indicative of potential financial problems
c. average
d. very positive
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
38. If Tim’s Tools & Tunes has current assets of $500, inventory of $45, current liabilities of $425, and profit of $250, which of the following is the quick ratio for the business?
a. 1.07
b. 1.28
c. 1.7
d. 2.18
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Reflective thinking
39. The ratios that measure the speed with which various accounts are converted into sales or cash and that are used to measure the efficiency of asset usage are known as ______.
a. liquidity ratios
b. activity ratios
c. leverage ratios
d. profitability ratios
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
40. The ratio that measures how quickly goods are sold and replenished is called ______.
a. average collection period
b. inventory turnover
c. quick ratio
d. current ratio
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
41. Bill’s Bolo business has a cost of goods sold of $45,000, an inventory of $20,000, and current assets of $50,000. Which of the following is the inventory turnover for the business?
a. 0.9
b. 1.3
c. 2.25
d. 2.5
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
42. The measure of how long it takes a firm to convert a credit sale into a usable form is known as which of the following?
a. average collection period
b. inventory turnover
c. quick ratio
d. current ratio
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
43. Sally’s Shoe Service has accounts receivables of $35,335, average sales per day of $500,000, and a cost of goods sold of $45,000. What is her average collection period?
a. 7.0 days
b. 7.8 days
c. 14.15 days
d. 25.79 days
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
44. High average collection periods usually indicate ______.
a. sales that are increasing
b. accounts receivable that are all being collected
c. many uncollected accounts receivable
d. overly restrictive credit policies
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
45. Which of the following ratios measures how efficiently the firm is using its assets to generate sales?
a. current ratio
b. total asset turnover ratio
c. fixed asset turnover
d. debt ratio
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
46. A low fixed asset turnover ratio often indicates that ______.
a. the firm is efficiently using its current assets
b. the firm is efficiently using its total assets
c. the firm is keeping expenses low
d. marketing efforts are ineffective
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
47. Larry’s Lab has sales of $35,750, net fixed assets of $14,500, current assets of $12,300, and cost of goods sold of $30,000. Which of the following is the fixed asset turnover ratio for the business?
a. 1.18 times
b. 1.19 times
c. 2.47 times
d. 2.91 times
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
48. Which of the following ratios measures how efficiently the firm uses all of its assets to generate sales?
a. fixed asset turnover
b. total asset turnover
c. debt ratio
d. times interest earned ratio
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
49. Shelli’s Ski Super has sales of $670, net fixed assets of $210, total assets of $305, and current assets of $25. Which of the following is the total asset turnover ratio for the business?
a. 0.46 times
b. 2.2 times
c. 3.19 times
d. 26.8 times
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
50. Which of the following ratios measures the extent to which a firm uses debt as a source of financing and its ability to service that debt?
a. liquidity ratios
b. activity ratios
c. leverage ratios
d. profitability ratios
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
51. Which of the following ratios measures the proportion of a firm’s total assets that have been acquired with borrowed funds?
a. fixed asset turnover
b. total asset turnover
c. debt ratio
d. times interest earned ratio
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
52. Kim’s Kar Kare Service has total debt of $690, total assets of $1,260, interest expense of $140, and sales of $400. Which of the following is the debt ratio for the business?
a. 11.1 percent
b. 31.7 percent
c. 54.8 percent
d. 58 percent
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
53. Which of the following ratios shows how far operating income can decline before the firm will have difficulties servicing its debt obligation?
a. fixed asset turnover
b. total asset turnover
c. debt ratio
d. times interest earned ratio
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
54. Sandi’s Silver Service has operating income of $545, sales of $750, expenses of $245, and interest expense of $198. Which of the following is the times interest earned ratio for the business?
a. 2.22
b. 2.75
c. 4.49
d. 72.6
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
55. Which of the following ratios is widely used as an indication of management efficiency and measures the percentage of each sales dollar that remains as profit after all expenses have been paid.
a. times interest earned
b. net profit margin
c. return on assets
d. return on equity
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
56. Becky’s Bovine Specials has a net income of $345, operating income of $305, sales of $678, and total assets of $245. Which of the following is the net profit margin for her business?
a. 0.361
b. 0.450
c. 0.508
d. 0.884
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
57. Which of the following ratios shows effective management and the firm’s effectiveness in generating profits from the available assets?
a. times interest earned
b. net profit margin
c. return on assets
d. return on equity
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
58. Danny’s Dog Delivery has total assets of $975, sales of $989, net profit after taxes of $56, and operating income of $576. Which of the following is the return on assets ratio for this business?
a. 0.057
b. 0.591
c. 0.986
d. 1.01
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
59. Which of the following ratios measures the return the firm earned on its owner’s investment in the firm?
a. times interest earned
b. net profit margin
c. return on assets
d. return on equity
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
60. Ally’s Allied Apples has net profit after taxes of $30, total assets of $989, sales of $979, owner’s equity of $990, and interest expense of $56. Which of the following is the return on equity for this business?
a. 0.030
b. 0.057
c. 0.989
d. 1.87
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
61. Tracking and forecasting ______ is often more critical to the survival of a business than is profit.
a. sales
b. revenues
c. expenses
d. cash flows
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
62. Each business day, 12 small businesses in the United States declare bankruptcy primarily for which of the following?
a. lack of sales
b. inexperienced management
c. poor cash-flow management
d. increasing expenses
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
63. The goal of good cash-flow management is to ______.
a. increase sales and thus increase revenues
b. decrease expenses and thus increase profits
c. have enough cash on hand when it is needed
d. increase asset usage and thus increase revenue
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
64. The period of time that begins when money is spent on raw materials and does not end until money is collected on the sale of a finished good is known as which of the following?
a. cash-to-cash cycle
b. cash budgets
c. sales-to-cash cycle
d. accounts receivable-to-cash cycle
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
65. The major complication involved in cash-flow management is ______.
a. revenue
b. sales
c. timing
d. expenses
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
66. The cash-to-cash cycle begins with ______.
a. manufacturing
b. using cash to purchase raw materials or inventory
c. generating sales of goods or services
d. collecting accounts receivable
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
67. A document that allows the firm to plan its short-term cash needs with particular attention to periods of surplus and shortage so that short-term investments can be made during cash surplus times and short-term loans can be taken during cash shortages is called the ______.
a. cash-to-cash cycle
b. cash budget
c. cash planning statement
d. cash-flow statement
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
68. The practice of showing everyone involved in a business the numbers that are critical to the performance of the business is called which of the following?
a. democratic management
b. open-book management
c. financial management
d. human resource management
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
69. An aging schedule that shows only the percentage of receivables for 0–30 days, 31–60 days, 61–90 days, and over 90 days is referred to as a/an ______.
a. macro-aging schedule
b. micro-aging schedule
c. current-aging schedule
d. future-aging schedule
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
70. Which of the following is the most likely place to concentrate cash flow management strategies?
a. supplies
b. compensation
c. receivables
d. insurance
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
NARRBEGIN: 8-1
Scenario 8-1. Dea’s Drugstore is currently having cash-flow problems. As the bills come due, Dea is having more difficulty ensuring that there is sufficient cash to pay those bills. It is a relatively new problem for her business, and she is not sure what to do. The only changes that she is aware of are some new requirements in the way insurance companies are reimbursing their customers for prescription drugs. Overall, inventory in the store is moving as usual and expenses have not increased from last year.
NARREND
71. In Scenario 8-1, if Dea does not solve her cash-flow problems shortly, ______.
a. she will not make a profit
b. sales will fall
c. expenses will fall
d. she may become insolvent
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Reflective thinking
Nar: 8-1
72. In Scenario 8-1, if Dea declares bankruptcy, she will join ______ other small businesses that declare bankruptcy each day due to poor financial management.
a. six
b. eight
c. ten
d. twelve
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Reflective thinking
NAR: 8-1
73. In Scenario 8-1, all but which of the following tools may help Dea with her cash flow problem?
a. a cash budget
b. micro-aging schedule
c. macro-aging schedule
d. an income statement
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Reflective thinking
NAR: 8-1
74. In Scenario 8-1, as Dea is glancing through her accounts receivables from her pharmacy customers, she notices that many accounts are over 90 days past due. A schedule that would show each customer’s account, the amount they owe, and the amount that is past due is called a/an ______.
a. macro-aging schedule
b. past due account schedule
c. micro-aging schedule
d. accounts receivable schedule
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
NAR: 8-1
75. In Scenario 8-1, which of the following areas may be contributing heavily to Dea’s cash flow problems?
a. sales
b. expenses
c. accounts receivables
d. inventory costs
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Reflective thinking
NAR: 8-1
NARRBEGIN: 8-2
Scenario 8-2. Denny’s Diner is undergoing an analysis of its current financial statements. Denny is interested in seeing how his business compares to the industry. In order to make this comparison, Denny has developed the following ratios. He has come to you for an interpretation of his numbers.
Denny’s Diner Industry
Current Ratio 1.51 1.62
Average Collection Period 2.50 5.00
Inventory Turnover 80 75
Debt Ratio 43% 52%
Net Profit Margin 10.2 8.3
NARREND
76. In Scenario 8-2, after analyzing the current ratio, you determined that ______.
a. Denny has a problem
b. Denny can cover his current liabilities 1.51 times with his current assets
c. Denny is too far off of the industry average in this case
d. Denny has inventory that cannot easily be converted into cash
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
NAR: 8-2
77. In Scenario 8-2, after analyzing the inventory turnover ratio, you determined that ______.
a. Denny has a problem because this number is so high
b. Denny is turning his inventory over too much
c. Denny is not turning his inventory over enough to be profitable
d. Denny is keeping his inventory current, which is positive due to the nature of his business
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
NAR: 8-2
78. In Scenario 8-2, after analyzing the average collection period ratio, you concluded that ______.
a. Denny has a problem since his number is so low
b. Denny may have overly restrictive credit policies
c. Denny has many uncollected accounts receivable
d. Denny’s cash flow will soon be affected since his accounts receivables are not being paid.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
NAR: 8-2
79. In Scenario 8-2, after analyzing the debt ratio, you concluded that ______.
a. Denny has a problem because the number is so low
b. Denny has a higher risk factor than the industry
c. Denny has financed 43 percent of the assets with borrowed funds
d. Denny needs to be concerned about this ratio and increase it in the near future
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
NAR: 8-2
80. In Scenario 8-2, after analyzing the net profit margin, you determined that ______.
a. Denny has a problem because this number is so high
b. Denny is generating 10 cents of after-tax profit per each dollar of sales
c. Denny is generating 10 percent on after-tax profits
d. Denny should be concerned with management efficiency
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Reflective thinking
NAR: 8-2
True/False
1. According to the text, the accounting process helps the small business owner translate numbers--the language of business--into plain English.
KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.1: Small Business Accounting
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
2. The majority of the mismanagement decisions that cause small businesses to fail are related to finance.
KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.1: Small Business Accounting
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
3. Assets are what your business owes, whereas liabilities are what your business owns.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
4. Another name for assets is net worth.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
5. When using a double-entry accounting system, debits always equal owner’s equity.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
6. Using a single-entry accounting system will allow a small business owner to produce an income statement and a balance sheet.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
7. Small business owners should always use separate checkbooks for their businesses and their personal lives.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
8. In the accounting equation, Assets = Liabilities + Revenue.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
9. The accounting equation Assets = Liabilities + Equity is illustrated by the profit-and-loss financial statement.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
10. “Cash flow = Receipts − Disbursements” is the basis of the cash flow statement.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
11. Generally accepted accounting principles are intended to create financial statement formats that are unique to each industry.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
12. When using the accrual basis method of accounting, transactions are recorded when cash is actually received and expenses are paid.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
13. The three most important financial statements for providing financial information about a business are the income statement, the balance sheet, and the statement of retained earnings.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
14. The cash flow statement is a critical financial statement, often more important to the survival of a business than profit as reported on the income statement.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
15. When preparing common-size statements, full or partial estimates are used since the business owner is making projections rather than recording actual transactions.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
16. The expertise with which the small business owner can understand, interpret, and use the information found in the financial statements will determine the soundness of the financial decisions made.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
17. On a weekly basis, business managers should record any money that is paid out.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
18. Ratio analysis is the most common form of financial analysis.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
19. Industry average analysis compares firms to industry leaders.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
20. Financial ratios by themselves tell the small business owner very little.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
21. Benchmarking involves computing financial ratios of an industry leader and comparing those ratios with one’s own firm.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
22. Activity ratios are used to measure a firm’s ability to meet its short-term obligations to creditors as they come due.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
23. Low average collection periods usually indicate many uncollectible receivables, while high average collection periods may indicate overly restrictive credit-granting policies.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
24. A high fixed asset turnover ratio generally reflects good overall management because it measures how efficiently the firm uses all of its assets to generate sales.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
25. A low net profit margin ratio indicates that expenses are too high relative to sales.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
26. A high return on equity ratio is generally a good indication for a business; however, this ratio is highly affected by debt and may not be an accurate measurement of management effectiveness.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
27. Each business day, 5,000 small businesses in the United States declare bankruptcy primarily because of poor cash flow management.
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
28. Without proactively managing a firm’s cash flow, the firm is exposed to many risks, each of which could spell disaster.
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
29. The primary reason a small business needs adequate cash flow is to pay the bills incurred by the business.
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
30. A cash budget typically covers a two-year period that is divided into smaller intervals.
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
31. Aging schedules are listings of a firm’s account payables according to the length of time they are outstanding.
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Easy
TOP: AACSB Standard: Analytical thinking
Short Answer
1. Discuss the importance of financial records to a small business.
KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a small business.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.1: Small Business Accounting
Difficulty Level: Medium
TOP: AACSB Standard: Analytical thinking
2. Discuss the three primary financial records that are needed by small business owners.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Medium
TOP: AACSB Standard: Analytical thinking
3. List at least four actions that should be taken on a weekly basis by a business manager.
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small business.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.2: Small Business Accounting Basics
Difficulty Level: Medium
TOP: AACSB Standard: Analytical thinking
4. Compare and contrast liquidity ratios and activity ratios.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Analytical thinking
5. Compare and contrast leverage ratios and profitability ratios.
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial statements.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Medium
TOP: AACSB Standard: Analytical thinking
6. Explain the importance of cash flow for a small business owner.
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Medium
TOP: AACSB Standard: Analytical thinking
7. List at least five tips for managing accounts receivable.
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing cash flow.
REF: Cognitive Domain: Comprehension
Answer Location: Concept Module 8.4: Managing Cash Flow
Difficulty Level: Medium
TOP: AACSB Standard: Analytical thinking
Document Information
Connected Book
Small Business Competitive Advantage 7e Test Bank
By Timothy S. Hatten