Chapter 17

Question 1

Financial planning

Answer 1

The process of setting financial goals and developing plans to reach them

Question 2

Revenue

Answer 2

The earnings that a business receives for the goods and services it sells

Question 3

Expense

Answer 3

The costs involved in operating a business

Question 4

Financial management

Answer 4

A process used to manage the financial resources of a business

Question 5

Accounting

Answer 5

The system of recording business transactions and analyzing, verifying, and reporting the results

Question 6

GAAP

Answer 6

The rules, standards, and practices businesses follow to record and report financial information

Question 7

Audit

Answer 7

A review of the financial statements of a business and the accounting practices that were used to produce them

Question 8

Business entity

Answer 8

An organization that exists independently of the owner’s personal finances

Question 9

Fiscal period

Answer 9

The period for which a business summarizes accounting information and prepares financial statements

Question 10

Budget

Answer 10

A financial plan that reflects anticipated revenue and expenses and shows how it will be allocated in the operation of the business

Question 11

Sales forecast budget

Answer 11

Projected sales units and revenue dollars for the period

Question 12

Sales forecast

Answer 12

Prediction of future sales based on past sales

Question 13

Start-up budget

Answer 13

A budget created in the planning stages for a new business

Question 14

Operating budget

Answer 14

A projection of the sales revenue that will be earned and the expenses that will be incurred during a future period

Question 15

Cash budget

Answer 15

Used to estimate the amount of money coming into and going out of the business

Question 16

Source document

Answer 16

Records that prove a business transaction occurred

Question 17

Merchandise

Answer 17

An item, or items, brought with the intention of reselling to customers

Question 18

Payroll

Answer 18

A list of all employees working for the business and their earnings, benefits, taxes withheld, and other deductions

Question 19

Withholding allowance

Answer 19

An amount of income that is not subject to income taxes

Question 20

Dependent

Answer 20

An individual who relies on someone else for financial support

Question 21

Employee’s earnings record

Answer 21

An individual record maintained for each employee

Question 22

Payroll register

Answer 22

A summary of the earnings, payroll deductions, and net pay for all employees recorded for each payroll period

Question 23

Gross pay

Answer 23

Amount of income earned before taxes and other deductions are withheld

Question 24

Account

Answer 24

An individual record that summarizes information for a single category

Question 25

Chart of accounts

Answer 25

A list of all accounts in the business

Question 26

Double-entry accounting

Answer 26

Recording the debit and credit parts of a transaction is called double-entry accounting

Question 27

Journal

Answer 27

A form used a record business transactions in chronological order

Question 28

Journalizing

Answer 28

The process of recording business transactions in a journal

Question 29

Ledger

Answer 29

A group of accounts

Question 30

Accounting cycle

Answer 30

The sequence of steps businesses follow to record, summarize, and report financial information

Question 31

Stakeholder

Answer 31

People with interest in the business

Question 32

Balance sheet

Answer 32

Reports the assets, liabilities, and owner's equity

Question 33

Cash flow statement

Answer 33

How cash moves into and out of a business

Question 34

Income statement

Answer 34

Business revenue and expenses for a specific period

Question 35

Financial ratio

Answer 35

Evaluate overall financial condition of the business by showing relationship between selected figures on financial statements

Question 36

Working capital

Answer 36

Difference between current assets and current liabilities

Question 37

Current asset

Answer 37

Cash or any asset that will be exchanged for cash or used within one year

Question 38

Current liability

Answer 38

A short-term debt that must be paid within one year

Question 39

Current ratio

Answer 39

Shows relationship of current assets to current liabilities

Question 40

Debt ratio

Answer 40

Shows percentage of dollars owed compared to assets owned

Question 41

Net profit ratio

Answer 41

Illustrates how much profit is generated per dollar of sales

Question 42

Operating ratio

Answer 42

Shows relationship of expenses to sales