Accounting Basics Quiz
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Questions and Answers

Which of the following are included in financial statements?

  • Balance Sheet (correct)
  • Income Statement (correct)
  • Operational Budget
  • Cash Flow Statement (correct)

What is the primary purpose of the cash flow statement?

  • To monitor cash inflow and outflow (correct)
  • To track liabilities of the business
  • To show profitability over time
  • To provide tax-related financial data

Which area of accounting is responsible for preparing internally circulated reports?

  • Governmental Accounting
  • Managerial Accounting (correct)
  • Tax Accounting
  • Financial Accounting

Which financial statement would provide information on the company's net earnings?

<p>Income Statement (A)</p> Signup and view all the answers

What are the three forms of accounting discussed?

<p>Financial, Managerial, and Governmental (C)</p> Signup and view all the answers

What is the percentage of Gross Margin expressed in relation to Net Sales for XYZ Corporation?

<p>80.49% (A)</p> Signup and view all the answers

How is Return on Sales calculated?

<p>Net profit divided by net sales revenue (C)</p> Signup and view all the answers

What does the Break-even point measure?

<p>The total sales needed to cover fixed costs (D)</p> Signup and view all the answers

Which of the following indicates the percentage of Net Income relative to Net Sales for XYZ Corporation?

<p>36.94% (C)</p> Signup and view all the answers

Which calculation helps determine when a product will reach its break-even point?

<p>Payback period (B)</p> Signup and view all the answers

Which of these is classified as an intangible asset?

<p>Goodwill (C)</p> Signup and view all the answers

What distinguishes long-term liabilities from short-term liabilities?

<p>Long-term liabilities are not due for at least one year. (A)</p> Signup and view all the answers

Which component does NOT belong to the owner's equity section?

<p>Mortgages (C)</p> Signup and view all the answers

Which of the following is an example of a current liability?

<p>Credit card debt (C)</p> Signup and view all the answers

What is the gross margin derived from the given sales revenue and cost of goods sold?

<p>$26,566.6 million (A)</p> Signup and view all the answers

What is the primary purpose of pro forma statements?

<p>To compare actual amounts against budgeted amounts. (B)</p> Signup and view all the answers

Which of the following is NOT a type of asset?

<p>Retained earnings (A)</p> Signup and view all the answers

Which figure represents the net cash from investing activities?

<p>($2,270.8 million) (B)</p> Signup and view all the answers

Which statement correctly describes retained earnings?

<p>It represents the profit not distributed as dividends. (B)</p> Signup and view all the answers

What does the income statement primarily focus on?

<p>Profitability of the firm (C)</p> Signup and view all the answers

How is the net marketing contribution derived?

<p>Gross margin minus advertising and promotion expenses (D)</p> Signup and view all the answers

Which of the following is a characteristic of non-current assets?

<p>They typically hold value for more than one year. (A)</p> Signup and view all the answers

What is the net increase in cash and cash equivalents reported?

<p>$733.1 million (D)</p> Signup and view all the answers

Which of the following activities is associated with net cash from financing activities?

<p>Transactions related to stocks, bonds, and loans (B)</p> Signup and view all the answers

In the provided figures, what amount accounts for advertising and promotion expenses?

<p>$1,441.3 million (C)</p> Signup and view all the answers

What is the result of subtracting cost of goods sold from sales revenue?

<p>Gross margin (A)</p> Signup and view all the answers

What is the operating income calculated from the net marketing contribution and operating expenses?

<p>$7,314.6 million (C)</p> Signup and view all the answers

What are the total liabilities reported on the balance sheet?

<p>$37,443.3 million (B)</p> Signup and view all the answers

What is included in the calculation of net income?

<p>Operating income and interest (B)</p> Signup and view all the answers

What characterizes current assets on the balance sheet?

<p>Items that can be converted into cash in less than a year (B)</p> Signup and view all the answers

What is the sum of current and non-current assets as reported on the balance sheet?

<p>$29,445.5 million (B)</p> Signup and view all the answers

How much is the retained earnings reported in the liabilities and shareholder's equity section?

<p>($8,037 million) (B)</p> Signup and view all the answers

What must the sum of liabilities and owner's equity equal according to accounting principles?

<p>Total assets (A)</p> Signup and view all the answers

Depreciation, interest, and taxes affect which financial metric?

<p>Net income (A)</p> Signup and view all the answers

Flashcards

Financial Accounting

Financial accounting reports financial data to external sources in a standard format.

Managerial Accounting

Managerial accounting creates internal reports and forecasts.

Governmental Accounting

Governmental accounting ensures taxes are paid correctly at local, state and federal levels.

Financial Statements

Essential documents that summarize a company's financial health.

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Cash Flow Statement

Tracks the flow of cash into and out of a business.

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Net Cash from Operating Activities

The net cash flow resulting from the company's normal day-to-day business operations.

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Net Cash from Investing Activities

The net cash flow resulting from investments the company makes, like buying assets or selling them.

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Net Cash from Financing Activities

The net cash flow resulting from transactions related to the company's debt, equity, or dividends.

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Net Increase (Decrease) in Cash and Cash Equivalents

The overall change in the company's cash balance.

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Sales Revenue

The total amount of revenue generated from sales of goods or services.

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Cost of Goods Sold (COGS)

The direct costs associated with producing the goods or services sold.

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Gross Margin

The difference between sales revenue and the cost of goods sold.

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Advertising and Promotion Expenses

Expenses related to marketing and advertising efforts to promote sales.

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Net Marketing Contribution

The total revenue generated from marketing efforts minus the direct costs associated with those efforts.

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Operating Expenses

Costs incurred in the day-to-day operations of a business, excluding direct marketing costs.

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Operating Income

The profit remaining after deducting operating expenses from net marketing contribution.

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Depreciation, Interest, and Taxes

Expenses related to the decline in value of assets, borrowed money, and government levies.

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Net Income

The final profit remaining after subtracting all expenses from revenue.

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Assets

Items of value owned by a business.

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Liabilities

Financial obligations or debts owed by a business.

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Owners' Equity

The value of the business that belongs to the owners after accounting for liabilities.

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Return on Sales

A ratio calculated by dividing net profit by net sales revenue. It reveals how much profit is generated from every dollar of revenue.

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Return on Investment

Measures how much profit is generated in relation to the initial investment. Calculated by dividing net profit by the investment amount.

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Breakeven Point

The level of sales where total revenue equals total costs, resulting in zero profit or loss.

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Payback Period

The time it takes for a business to generate enough revenue to cover its initial investment.

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Rate of Change

Measures the percentage change between two figures. Calculated by subtracting the old figure from the new figure and dividing by the old figure.

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Current Assets

Assets that can be converted to cash within a year. Examples: cash on hand, savings accounts, and short-term investments.

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Non-current Assets

Assets that take more than a year to convert to cash. These include items like property, equipment, and long-term investments.

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Goodwill

An intangible asset representing the value of a company's reputation, brand name, and customer loyalty.

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Current Liabilities

Debts due within a year. Examples include credit card debt, short-term loans, and accounts payable.

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Long-term Liabilities

Debts that are due in more than a year. Examples include mortgages and long-term loans.

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Stockholders' Equity

Represents the value of the ownership stake in a company. It shows how much the owners have invested.

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Retained Earnings

The portion of net profit that is kept within the company rather than distributed to shareholders as dividends.

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Study Notes

Learning Objectives

  • Define revenue, costs, and profitability
  • Explain the three forms of accounting
  • Interpret entries on the three financial statements
  • Use formulas to calculate financial ratios
  • Differentiate types of expenses and liabilities

Accounting Areas

  • Financial: Reports data in the form of standard financial statements to external sources
  • Managerial: Prepares internally circulated reports and creates forecasts
  • Governmental: Ensures fees and taxes are paid at the local, state, or federal level

Financial Statements

  • Cash Flow Statement: Tracks cash inflows and outflows, separated by operating, investing, and financial activities
  • Income Statement: Shows the firm's profitability, starting with revenue and subtracting costs of goods sold to determine gross margin. Expenses are deducted to arrive at net income.
  • Balance Sheet: Represents the assets, liabilities, and owners' equity of a business. Assets must equal the sum of liabilities and equity.

Applying the Financial Statements

  • Monetary Control: Ensures only spending money available
  • Pro Forma Statements: Organize entries by revenue and expenses, comparing projected and actual amounts to the budget.
  • Profit and Loss (P&L) Statements: Shows the actual amounts compared to the budgeted amounts, expressed in relation to sales revenue.

Important Ratios & Calculations

  • Return on Sales: Net profit divided by net sales revenue
  • Return on Investment: Net profit divided by investment amount
  • Breakeven: Total fixed costs divided by gross margin per unit
  • Payback Period: Period when enough product is sold to recoup the investment amount
  • Rate of Change: (New figure - Old figure) / Old figure

Additional Concepts

  • Assets: Current assets can be turned into cash within a year, while non-current assets take longer. Goodwill includes items like trademarks and copyrights.
  • Liabilities: Current liabilities are due within a year, while long-term liabilities are due over a longer period.
  • Owners' Equity: Stockholders' equity and retained earnings make up owners' equity; represents the owners' investment in the business. Retained earnings are profits not distributed as dividends.

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Description

Test your knowledge on key accounting concepts, including revenue, costs, and profitability. This quiz covers the three forms of accounting and the interpretation of financial statements such as cash flow, income statement, and balance sheet. Brush up on financial ratios and differentiate between types of expenses and liabilities.

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