24 Questions
What is Accounts Receivable in the context of economic activity?
Money owed to the business
What is a major disadvantage of a Sole Proprietorship?
Unlimited liabilities of the owner
Who makes strategic decisions in a Partnership?
General partners
What is the formula for calculating Accounts Receivable?
(Average Credit Sales / Day) * Average Collection Period
What happens to a Sole Proprietorship if the owner dies?
The business is dissolved
What is a characteristic of a General Partner in a Partnership?
Unlimited liability
What is the main difference between Taxation I and Taxation II?
Individual vs Corporate
What is the purpose of International Accounting?
To adhere to each country's policies
What is the formula for the Current Ratio?
Current Assets / Current Liabilities
What is the purpose of the Allowance for Doubtful Accounts?
To subtract from receivables for unpaid invoices
What does a high Assets Turnover ratio indicate?
Efficient use of assets
What is the purpose of the Acid Test Ratio?
To measure a company's liquidity
What does a high Debt Ratio indicate?
High levels of debt
What is the purpose of the Days Sales Outstanding (DSO) calculation?
To measure the average time to collect accounts receivable
What is the main characteristic of a business cycle?
Fluctuations in economic activity
What is the purpose of the Inventory Turnover ratio?
To measure the efficiency of inventory management
What is the impact on current assets when a company undergoes an Initial Public Offering (IPO)?
Current assets increase
What is the effect on net profit when a company sells a current asset below its book value?
Net profit decreases
What is the impact on current ratio when a company declares and pays cash dividends?
Current ratio decreases
What is the primary focus of Fiscal Policy?
Government spending and taxation
Which of the following is an example of Cash from Financing?
Issuance of bonds
What is the impact on net income when a company declares but does not pay cash dividends?
Net income remains unchanged
Which of the following is a part of the Federal Reserve System?
Central Bank
What is the impact on current assets when a company sells a current asset at its book value?
Current assets decrease
Study Notes
Accounting Classes
- Building inspector: class is inspected, class represents building, building represents institution
- Taxation I & II:
- I: individual
- II: corporate
- International Accounting: usually for corporations that have operations in multiple countries, adhering to each country's policies
- Advanced Accounting: long employee contracts, pay packages (usually for athletes)
Balance Sheets
- Accounting provides information on how much money you have, but finance details how to manage it
- Economies of scale: the more you buy, the cheaper something is
- Balance Sheet:
- Total liabilities should equal total assets + stakeholder's equity
- Current Assets: cash, A/R, supplies, prepaid insurance
- Current Liabilities: A/P, unearned subscription revenue, salaries payable
- Fixed Assets: office equipment, building, land
- Long-term Liabilities: mortgage payable, bonds payable
Financial Ratios
- Current Ratio: Current Assets / Current Liabilities
- Working Capital: Current Assets - Current Liabilities
- Acid Ratio (Quick Ratio): (Current Assets - Inventory) / Current Liabilities
- Assets Turnover: (Sales / Assets)
- Fixed Assets Turnover: (Sales / Fixed Assets)
- Inventory Turnover: (Sales / Inventory)
- A/R Turnover: (Sales / A/R)
- Debt Ratio: (Total Liabilities / Total Assets)
Forms of Business
- Sole Proprietorship:
- One individual owns the business
- Pros: easy to form, decision-making process is easy, owner pays one type of taxes
- Cons: unlimited liabilities, no separation between personal and business assets
- Partnership:
- General partners: perform strategic decisions, unlimited liabilities
- Limited partners: perform regular decisions, limited liabilities
- Corporation:
- Stock or shares (capital)
Statement of Cash Flow
- Cash from operation: current assets & current liabilities
- Cash from investing: fixed assets
- Cash from financing: IPO, issuance of bonds, declare and pay cash dividend, short-term borrowing from a bank
Policies & Investments
- Fiscal Policy: government spending, president and congress are in charge, treasury department allocates taxes
- Monetary Policy: deals with money supply and interest rates, the federal reserve system for banks
This quiz covers various aspects of accounting, including building inspection, taxation, international accounting, and advanced accounting.
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