Exam 11: Understanding Accounting

Aardvark is a small pest-control business that has 30 employees. The company started business within the past year and needs to make a decision on how best to make sure its finances are managed well as the company continues to grow its customer base and its business. Which of the following, if true, would not strengthen the case that Aardvark needs to hire a full-time controller?

Retained earnings equal net profits plus dividend payments to stockholders.

What are the steps in the accounting cycle?

How much profit does a company (which has a total of $5 million invested by its owners and $4 million in liabilities) need to make in order to have an assets-to-liabilities ratio of 2:1?

Owners' equity consists of two sources of capital. What are they?

What is a budget?

If a company does not produce accurate accounting information, the group that is hurt the most is investors.

The financial statement detailing a firm's assets, liabilities, and owners' equity is the

A prepaid expense is

The most important of all financial ratios is earnings per share.

Current liabilities consisting of bills owed to suppliers plus wages and taxes due within the upcoming year are known as

What is the purpose of a balance sheet? What are the major types of information shown on the balance sheet?

Owners' equity is

What does the term "double-entry" accounting mean?

Andy's line of credit with a local bank is likely a(n)

Meredith recently bought a business. But she paid more for the business than the total of its current and fixed assets. What did she pay extra for?

Julie, a recent college graduate, is interested in business and is considering pursuing a career in accounting. Her parents are supportive, with her mother recommending that Julie become a public accountant and her father recommending that she become a private accountant. Which of the following, if true, supports the mother's position?

At the end of the fiscal year for Santos Industrial Machinery, management raised concerns about the company's financial performance. The company's accountants have been asked to analyze the current financial state of the company by using ratio analysis. Santos needs to assess its debt situation with respect to the value of the company. Which of the following, if true, would most strengthen the case that Santos's debt is manageable?

Kershner says: "Our income statement should be looking good this year. We've been doing excellent business this year, so we have a lot of gross sales. The company should be in good shape." Michaels replies: "It remains to be seen how our income statement will look overall. In spite of strong sales revenue, the overall income statement might not be as good as we might hope." Which of the following, if true, would strengthen Kershner's argument?

Short-term solvency ratios are used primarily to measure the profitability of a business firm, but they can also be used to measure long-term profitability.