Financial Management

Question 1

For general purposes, how long should business records be kept for?

Answer 1

Records should be kept for up to seven years. Records on assets like vehicles, equipment, buildings or land need to be kept as long as the asset is owned. For employees records held for at least four years after the date the tax is due.

Question 2

What are the three basic types of financial statements?

Answer 2

1. Balance Sheet
2. Income Statement
3. Cash Flow Statement

Question 3

What is a profit and loss statement?

Answer 3

Also called Income Statement, a company’s financial report that indicates how the revenue is transformed into net income (profit).

Question 4

Cash Flow Statement

Answer 4

Provides information about cash receipts and payments during any given period. It shows receipts, payments and net change.

Question 5

Liquidity Ratio

Answer 5

Current assets ÷ Current liabilities = Liquidity Ratio

Question 6

Quick Ratio or “Acid Test”

Answer 6

(Cash + Accounts Receivable) ÷ Current liabilities = Quick Ratio

Question 7

Current Ratio

Answer 7

Total Current Assets ÷ Total Current Liabilities

Question 8

Debt-to-Equity

Answer 8

Total Liabilities (or Debt) ÷ Total Owners’ Equity

Question 9

Prompt Payment Act

Answer 9

Prime contractors must be paid within 14 days after submitting a progress payment. They are then required to pay subcontractors within 7 days of receipt of that money. Not doing so demonstrates an intent to defraud.

Question 10

___________________ is crucial in maintaining a successful business.

Answer 10

Organization

Question 11

A system of recording and summarizing business and financial transactions is called _______________.

Answer 11

accounting

Question 12

A company’s cash, accounts receivable, inventory, notes receivable and prepaid expenses are examples of ______________________.

Answer 12

current assets

Question 13

Notes payable, accounts payable, unpaid wages and taxes due are all examples of ___________________________.

Answer 13

Current Liabilities

Question 14

If a business has Current Assets of $500,000 and Current Liabilities of $250,000, what is the Net Working Capital of the business?

Answer 14

$250,000

Question 15

The financial statement that shows the financial status of a company at a specific date is called the __________________.

Answer 15

Balance Sheet

Question 16

Current Liabilities are debts that must be paid within _______________.

Answer 16

One year

Question 17

For general purposes, finanacial records should be kept for up to ________ years.

Answer 17

seven (7)

Question 18

Accounting is based on five basic account types:

Answer 18

Assets, Liabilities, Equity, Income and Expenses

Question 19

There are three basic types of financial statements. They are:

Answer 19

Balance Sheet, Income Statement and Cash Flow Statement

Question 20

Many times a contract cannot be completed in one taxable year. The Tax Reform Act or 1986 allows you to use a different accounting method in order to estimate income. Which of the following are acceptable?

Answer 20

Completed Contract Method
Percentage of Completion Method
Cost Comparison Method

Question 21

The Prompt Payment Act requires that prime contractors must be paid within _______ after submitting a progress payment. They must then pay their subcontractors within _____ of that money.

Answer 21

14 days/7 days

Question 22

2/10 prox net 30 means:

Answer 22

2% discount if paid by the 10th day of the month following purchase; otherwise the entire amount is due within 30 days

Question 23

A ________ form is completed by the employee. It allows the employer to calculate the correct federal withholding based on an individual’s filing status, withholding allowances and exemptions.

Answer 23

W-4

Question 24

The general calculation to determine net pay is : Gross Pay - taxes withheld - deductions withheld = Net Pay

Answer 24

True