Questions and Answers
Revenue minus expenses equals _____.
profit or loss
An employee using direct deposit will receive a paycheck printed electronically to take to the bank.
False
Current liabilities are amounts owed by the business that will be paid off within two years.
False
FICA refers to _____.
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What is the formula for calculating owner's equity?
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When the company is operating at a loss, the total expenses listed on the income statement will be _____.
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Examples of long-term assets are _____.
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A current ratio of 2:1 means that the value of current assets is twice as much as the value of current liabilities.
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The _____ tells you if the business will be able to pay its debts when they are due.
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_____ records identify the amount assets have decreased in value due to their age and use.
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Actual revenue and expenses for a specific period are reported on the _____.
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The differences between actual and budgeted performance, called _____, allow managers to spot problems before they become serious.
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The _____ shows how much profit is being made by each dollar of sales for the period being analyzed.
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A current ratio of 1:2 represents an unhealthy business situation.
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Sources of information to help build a budget for a new business include all except _____.
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Financing requirements for a major business expansion are based on the _____ budget.
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If owners have total equity of $1,000,000 in the business and the business has net income (profit) of $10,000, the return on equity is _____.
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The right side of the balance sheet lists _____.
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A business with a debt-to-equity ratio of 3:1 may have trouble borrowing additional funds from a bank.
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If you are an employee of a company, your net pay is _____.
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Study Notes
Financial Management Overview
- Profit or loss is calculated by subtracting expenses from revenue.
- Direct deposit does not involve receiving a printed paycheck; it deposits funds electronically into the bank.
- Current liabilities must be settled within one year, not two.
- FICA encompasses Social Security and Medicare taxes.
Owner's Equity & Assets
- Owner's equity is determined by subtracting total liabilities from total assets.
- When operating at a loss, total expenses exceed total revenue.
- Long-term assets typically include buildings and equipment.
Financial Ratios
- A current ratio of 2:1 indicates current assets are twice the value of current liabilities, suggesting financial stability.
- The current ratio assesses a business's ability to pay debts as they come due.
- Depreciation records reflect the reduction in value of assets over time due to wear and tear.
Income Statement & Budgeting
- The income statement reports actual revenue and expenses for a designated period.
- Discrepancies highlight performance gaps between actual and budgeted figures, allowing for early problem detection.
- The net income ratio illustrates profit generated per dollar of sales.
Financial Health Indicators
- A current ratio of 1:2 suggests financial distress in the business.
- Budgets for new businesses should utilize various sources; past financial records are generally not applicable.
- Start-up budgets inform financing needs for business expansion.
Return on Equity & Balance Sheet
- If total equity is $1,000,000 and net income is $10,000, the return on equity is calculated at 1%.
- The right side of the balance sheet lists liabilities and owner's equity.
- A business with a debt-to-equity ratio of 3:1 may face challenges in securing additional bank loans.
Employee Compensation
- An employee's net pay is determined by deducting taxes and other withholdings from their gross pay.
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Description
Test your knowledge on key concepts from Chapter 12 of Financial Management. This quiz covers terms related to revenue, expenses, and liabilities, ensuring you understand the essentials of financial terminology and principles. Challenge yourself with true or false questions to solidify your understanding.
