Business Management And Law Ch 8: Financial Management Test

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Business Management And Law Ch 8: Financial Management Test - Quiz

BML Financial Management


Questions and Answers
  • 1. 

    List containing information on each customer, what they purchased, the value of the item(s) purchased, and how much they owe for each credit sale.

    • A.

      Accounts receivable

    • B.

      Accounts payable

    • C.

      Long-term assets

    • D.

      Cash records

    Correct Answer
    A. Accounts receivable
    Explanation
    The given correct answer is "accounts receivable". This term refers to the list containing information on each customer, what they purchased, the value of the item(s) purchased, and how much they owe for each credit sale. It represents the amount of money that a company is owed by its customers for goods or services that have been delivered but not yet paid for.

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  • 2. 

    The differences between actual and budgeted performance are known as ___.

    • A.

      Discrepancies

    • B.

      Shortages

    • C.

      Overages

    • D.

      Windfalls

    Correct Answer
    A. Discrepancies
    Explanation
    The term "discrepancies" refers to the differences between actual and budgeted performance. It implies that there is a variance or inconsistency between what was planned or expected and what actually occurred. This could include variations in revenue, expenses, or other financial or operational metrics. "Shortages" and "overages" usually refer to situations where there is a deficit or surplus in a particular item or resource, while "windfalls" typically indicate unexpected gains or benefits. Therefore, "discrepancies" is the most appropriate term to describe the differences between actual and budgeted performance.

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  • 3. 

    Assets, liabilities, and owners' equity for a specific date are listed on a financial statement called the ___.

    • A.

      Balance sheet

    • B.

      Income statement

    • C.

      Asset records

    • D.

      Credit records

    Correct Answer
    A. Balance sheet
    Explanation
    The balance sheet is a financial statement that lists the assets, liabilities, and owners' equity for a specific date. It provides a snapshot of a company's financial position at a given point in time. The balance sheet helps investors, creditors, and other stakeholders understand the company's resources, obligations, and ownership interests. It is an essential tool for evaluating the financial health and stability of a business.

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  • 4. 

    Which of these is used to keep track of the lost value of assets due to time or usage?

    • A.

      Depreciation records

    • B.

      Inventory records

    • C.

      Tax records

    • D.

      Records of accounts

    Correct Answer
    A. Depreciation records
    Explanation
    Depreciation records are used to keep track of the lost value of assets due to time or usage. This is important for businesses to accurately reflect the decrease in value of their assets over time. By recording depreciation, businesses can properly account for the reduction in value of their assets and allocate the appropriate expenses. This helps in determining the true financial position of the company and making informed decisions regarding asset replacement or disposal.

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  • 5. 

    Which two of these are most likely to cause a business legal problems if not kept accurately?

    • A.

      Asset records

    • B.

      Depreciation records

    • C.

      Inventory records

    • D.

      Records of accounts

    • E.

      Cash records

    • F.

      Payroll records

    • G.

      Tax records

    Correct Answer(s)
    F. Payroll records
    G. Tax records
    Explanation
    Payroll records and tax records are most likely to cause legal problems if not kept accurately. Incorrect payroll records can lead to issues such as underpayment or non-payment of employees, which can result in legal disputes and penalties. Similarly, inaccurate tax records can lead to incorrect reporting of income or expenses, which can result in audits, fines, and legal consequences. Therefore, it is important for businesses to maintain accurate and up-to-date payroll and tax records to ensure compliance with legal requirements.

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  • 6. 

    All income that a business receives over time is called

    • A.

      Revenue

    • B.

      Assets

    • C.

      Expenses

    • D.

      Liabilities

    Correct Answer
    A. Revenue
    Explanation
    Revenue refers to all the income that a business generates over a period of time. It includes all the money received from the sale of goods or services, as well as any other sources of income such as rent or interest. Revenue is an important measure of a company's financial performance and is used to calculate profitability and assess the overall health of the business.

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  • 7. 

    Records that identify the type and number of products on hand for sale.

    • A.

      Inventory records

    • B.

      Asset records

    • C.

      Accounts receivable

    • D.

      Accounts payable

    Correct Answer
    A. Inventory records
    Explanation
    Inventory records are the correct answer because they refer to the documentation that tracks the type and quantity of products a company has available for sale. These records are crucial for managing and monitoring inventory levels, ensuring accurate stock counts, and making informed decisions regarding purchasing and sales strategies. By keeping track of inventory records, businesses can optimize their supply chain, minimize stockouts, and maximize profitability.

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  • 8. 

    Records that contain information on all employees, their compensation and benefits are known as ___.

    • A.

      Asset records

    • B.

      Payroll records

    • C.

      Account records

    • D.

      Inventory records

    Correct Answer
    B. Payroll records
    Explanation
    Payroll records are a type of record that contains information on all employees, their compensation, and benefits. These records are used to keep track of employees' salaries, wages, deductions, and taxes. They are essential for calculating and processing payroll, ensuring that employees are paid accurately and on time. Additionally, payroll records help businesses comply with legal requirements and provide documentation for audits or disputes. Therefore, the correct answer is payroll records.

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  • 9. 

    Which of these contains records of the buildings, land and equipment that a business owns?

    • A.

      Asset records

    • B.

      Inventory records

    • C.

      Account records

    • D.

      Tax records

    Correct Answer
    A. Asset records
    Explanation
    Asset records contain information about the buildings, land, and equipment that a business owns. These records provide a detailed account of the company's physical assets and their value. By maintaining accurate asset records, a business can track its investments, monitor depreciation, and make informed decisions regarding asset management and allocation. These records are essential for financial reporting, tax purposes, and overall business planning.

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  • 10. 

    Which ratio tells you how much the business is relying on borrowed money?

    • A.

      Current ratio

    • B.

      Debt to equity ratio

    • C.

      Return on equity ratio

    • D.

      Net income ratio

    Correct Answer
    B. Debt to equity ratio
    Explanation
    The debt to equity ratio is a financial metric that shows the proportion of a company's financing that comes from debt compared to equity. A higher debt to equity ratio indicates that the business relies more on borrowed money to finance its operations. This ratio is used to assess the company's financial risk and its ability to meet its debt obligations.

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  • 11. 

    Amounts that  company will pay off within one year.

    • A.

      Current liabilities

    • B.

      Long-term liabilities

    • C.

      Current assets

    • D.

      Accounts receivable

    Correct Answer
    A. Current liabilities
    Explanation
    Current liabilities refer to the debts or obligations that a company is expected to pay off within one year. These can include short-term loans, accounts payable, accrued expenses, and other similar obligations. Current liabilities are important for assessing a company's liquidity and ability to meet its short-term financial obligations. By analyzing the current liabilities, investors and creditors can evaluate the company's financial health and its ability to manage its short-term cash flow.

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  • 12. 

    Refers to income taxes, Social Security, Medicare, and unemployment taxes.

    • A.

      Payroll taxes

    • B.

      FICA taxes

    • C.

      Luxury taxes

    • D.

      Capital gains taxes

    Correct Answer
    A. Payroll taxes
    Explanation
    Payroll taxes refer to the taxes that are deducted from an employee's paycheck and are used to fund programs such as income taxes, Social Security, Medicare, and unemployment taxes. These taxes are typically withheld by the employer and are based on the employee's earnings. Payroll taxes are different from other types of taxes such as luxury taxes or capital gains taxes, as they specifically pertain to the income earned through employment.

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  • 13. 

    Which ratio tells you whether a business can pay its debts as they come due?

    • A.

      Current ratio

    • B.

      Debt to equity ratio

    • C.

      Return on equity ratio

    • D.

      Net income ratio

    Correct Answer
    A. Current ratio
    Explanation
    The current ratio measures a business's ability to pay its short-term obligations with its current assets. It compares current assets (such as cash, inventory, and accounts receivable) to current liabilities (such as accounts payable and short-term debt). A higher current ratio indicates a better ability to meet short-term debt obligations, while a lower ratio may suggest a potential liquidity issue. Therefore, the current ratio is the appropriate ratio to assess a business's ability to pay its debts as they come due.

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  • 14. 

    The costs of operating a business.

    • A.

      Revenue

    • B.

      Assets

    • C.

      Losses

    • D.

      Expenses

    Correct Answer
    D. Expenses
    Explanation
    Expenses refer to the costs incurred by a business in its day-to-day operations. These costs include various expenditures such as employee salaries, rent, utilities, raw materials, and other overhead expenses. By subtracting expenses from revenue, a business can determine its profitability. Therefore, expenses play a crucial role in understanding the financial health of a business and are an essential aspect of operating a successful business.

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  • 15. 

    Cash and items that can readily be converted into cash are known as

    • A.

      Current assets

    • B.

      Current ratio

    • C.

      Long-term assets

    • D.

      Current liabilities

    Correct Answer
    A. Current assets
    Explanation
    Cash and items that can readily be converted into cash are known as current assets. Current assets are assets that are expected to be converted into cash or used up within one year or the operating cycle of a business. These assets include cash, accounts receivable, inventory, and short-term investments. They are important for a business's day-to-day operations and liquidity. Current assets are listed on the balance sheet and are used to calculate financial ratios such as the current ratio, which measures a company's ability to pay its short-term obligations.

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  • 16. 

    The main source of financial information established businesses use to prepare a budget is

    • A.

      The company's past financial records.

    • B.

      The Small Business Administration.

    • C.

      The Wall Street Journal.

    • D.

      Accountants and bankers.

    Correct Answer
    A. The company's past financial records.
    Explanation
    Established businesses use their past financial records as the main source of financial information to prepare a budget. These records provide valuable insights into the company's historical financial performance, including revenue, expenses, and cash flow. By analyzing past financial data, businesses can identify trends, patterns, and areas of improvement, which can inform their budgeting decisions for the future. This approach allows businesses to make more accurate and informed projections and allocate resources effectively to achieve their financial goals. The Small Business Administration, the Wall Street Journal, accountants, and bankers may provide additional financial information and guidance, but they are not the primary source for budget preparation.

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  • 17. 

    If a budget contains several discrepancies, the LAST adjustment that managers should attempt is to

    • A.

      Find ways to increase revenue.

    • B.

      Redo the budget.

    • C.

      Seek ways to cut expenses.

    • D.

      Double-check their calculations.

    Correct Answer
    B. Redo the budget.
    Explanation
    Managers should attempt to redo the budget as the last adjustment if it contains several discrepancies. This is because redoing the budget allows managers to identify and correct any errors or discrepancies that may have been made during the initial budgeting process. By doing so, managers can ensure that the budget accurately reflects the financial goals and objectives of the organization. Additionally, redoing the budget can help managers make more informed decisions regarding revenue generation and expense reduction, as they will have a clearer understanding of the financial situation.

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  • 18. 

    This is an estimate of the actual money a business received and paid out for a specific period.

    • A.

      Start-up budget

    • B.

      Operating budget

    • C.

      Short-term budget

    • D.

      Cash budget

    Correct Answer
    D. Cash budget
    Explanation
    A cash budget is a financial plan that shows the estimated amount of money a business is expected to receive and pay out over a specific period. It focuses on the actual cash inflows and outflows, taking into account factors such as sales revenue, expenses, and investments. This budget helps businesses manage their cash flow effectively by providing a clear picture of their liquidity position. It allows them to anticipate any cash shortages or surpluses and make informed decisions regarding their financial activities.

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  • 19. 

    Liabilities are

    • A.

      What a company owes.

    • B.

      The value of the owners' investment in the company.

    • C.

      What a company owns.

    • D.

      What a company has on hand to sell.

    Correct Answer
    A. What a company owes.
    Explanation
    Liabilities refer to the financial obligations or debts that a company owes to external parties, such as creditors, suppliers, or lenders. It includes both short-term liabilities, such as accounts payable and accrued expenses, as well as long-term liabilities, such as loans and bonds payable. Liabilities represent the claims that others have on the company's assets and are an important aspect of a company's financial health and stability. Therefore, the correct answer is "what a company owes."

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  • 20. 

    All of the following are fixed assets EXCEPT

    • A.

      Land.

    • B.

      Inventory.

    • C.

      Expensive technology.

    • D.

      All of these are fixed assets.

    Correct Answer
    B. Inventory.
    Explanation
    Fixed assets are long-term tangible assets that are used in the production or operation of a business and have a useful life of more than one year. They are not intended for sale in the normal course of business. Land, expensive technology, and all other fixed assets are examples of long-term assets that are not expected to be converted into cash within a year. However, inventory is a current asset that represents goods held for sale in the normal course of business. It is not considered a fixed asset because it is expected to be sold or consumed within a year.

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  • 21. 

    Which of these identifies the companies from which credit purchases were made?

    • A.

      Cash record

    • B.

      Payroll record

    • C.

      Accounts payable record

    • D.

      Accounts receivable record

    Correct Answer
    C. Accounts payable record
    Explanation
    The accounts payable record is a document that tracks and records credit purchases made by a company. It includes information about the vendors or companies from which the purchases were made, along with the amount owed and the payment terms. This record is used to keep track of outstanding debts and to ensure that payments are made to the correct vendors.

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  • 22. 

    A company's sales and profits for a specific period are listed in the company's

    • A.

      Income statement.

    • B.

      Operating budget.

    • C.

      Balance sheet.

    • D.

      Cash budget.

    Correct Answer
    A. Income statement.
    Explanation
    The income statement is a financial statement that shows a company's sales and profits for a specific period. It provides a summary of the company's revenue, expenses, and net income or loss. The income statement helps in evaluating the company's financial performance and profitability. It is different from the operating budget, which is a detailed plan outlining the company's projected revenues, expenses, and profits for a specific period. The balance sheet, on the other hand, provides a snapshot of the company's financial position at a specific point in time, including its assets, liabilities, and equity. The cash budget focuses specifically on the company's cash inflows and outflows.

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  • 23. 

    Which of the following is NOT a common payroll deduction?

    • A.

      Income tax

    • B.

      Social Security

    • C.

      Health insurance

    • D.

      Unemployment tax

    Correct Answer
    D. Unemployment tax
    Explanation
    Unemployment tax is not a common payroll deduction because it is not deducted from an employee's wages. Instead, it is paid by the employer to fund unemployment benefits for workers who have lost their jobs. The other options - income tax, Social Security, and health insurance - are all common deductions that are typically withheld from an employee's paycheck.

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  • 24. 

    An earnings report includes

    • A.

      The employee's job title.

    • B.

      The number of sick days an employee has available.

    • C.

      The amount of deductions for the current pay period.

    Correct Answer
    C. The amount of deductions for the current pay period.
    Explanation
    The correct answer is "the amount of deductions for the current pay period." This is because an earnings report typically includes information about the deductions made from an employee's salary for that specific pay period. It provides transparency regarding the various deductions such as taxes, insurance premiums, retirement contributions, and any other withholdings. This information helps employees understand how their net pay is calculated and provides them with a breakdown of their earnings after deductions.

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  • 25. 

    A company's liabilities divided by the owners' equity is the

    • A.

      Current ratio

    • B.

      Debt to equity ratio

    • C.

      Return on equity ratio

    • D.

      Net income ratio

    Correct Answer
    B. Debt to equity ratio
    Explanation
    The debt to equity ratio is calculated by dividing a company's liabilities by its owners' equity. This ratio is used to assess the company's financial leverage and risk. A higher ratio indicates that the company relies more on debt financing, which can be risky. On the other hand, a lower ratio suggests that the company has a stronger financial position and is less reliant on debt. Therefore, the debt to equity ratio is the appropriate answer in this case.

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  • 26. 

    If expenses are less than revenue, the business will suffer a loss.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    If expenses are less than revenue, it means that the business is making a profit, not suffering a loss. When expenses are lower than the revenue generated, it indicates that the business is able to cover all its costs and still have money left over. Therefore, the statement is false.

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  • 27. 

    Managers are usually held accountable if their part of the company faces financial problems.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Managers are usually held accountable if their part of the company faces financial problems because they are responsible for overseeing the operations and financial performance of their department or division. They are expected to make sound financial decisions, manage resources effectively, and ensure that their team meets financial targets. If their part of the company experiences financial problems, it is likely that their management decisions or actions have contributed to these issues, making them accountable for the financial outcomes.

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  • 28. 

    Budgeting is much easier for a new business than for a well-established business.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Budgeting is generally more challenging for a new business compared to a well-established business. A new business lacks historical financial data and may have uncertain revenue and expenses. On the other hand, a well-established business has a track record of financial performance, making it easier to forecast and allocate resources. Therefore, the statement that budgeting is easier for a new business is incorrect.

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  • 29. 

    Explaining the budget to people who need financial information to make decisions is the first step of the business budgeting process.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The explanation for the answer "False" is that explaining the budget to people who need financial information is not the first step of the business budgeting process. The first step in the process is typically identifying the financial goals and objectives of the business, followed by gathering relevant financial data and analyzing it to create a budget. Explaining the budget to stakeholders and decision-makers comes later in the process.

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  • 30. 

    Records of accounts identify all purchases and sales made using credit.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because records of accounts are used to track and document all financial transactions, including purchases and sales made using credit. These records help businesses keep track of their financial activities and ensure accurate bookkeeping. By identifying all credit-based transactions, businesses can monitor their cash flow, track outstanding balances, and reconcile their accounts effectively. Additionally, these records are crucial for auditing and taxation purposes, providing a clear and transparent overview of a company's financial history.

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  • 31. 

    Because they are so vital to businesses, financial records are still usually prepared manually using paper documents.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Financial records are not usually prepared manually using paper documents because advancements in technology have allowed businesses to automate their financial processes. Electronic systems and software are commonly used to record and manage financial transactions, making the process more efficient and accurate. This eliminates the need for manual preparation and reduces the reliance on paper documents. Therefore, the statement is false.

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  • 32. 

    There is no point in comparing your financial statements with those of another company.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Comparing financial statements with those of another company can provide valuable insights and benchmarks for performance evaluation, industry analysis, and identifying areas for improvement. It allows for identifying best practices, understanding market trends, and making informed decisions. Therefore, there is indeed a point in comparing financial statements with those of another company, making the given answer "False" correct.

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  • 33. 

    A payroll is the financial record of employee compensation, deductions, and net pay.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The given statement is true. A payroll refers to the financial record that includes details of employee compensation, deductions, and net pay. It is a comprehensive record that tracks the amount an employee earns, the deductions made from their salary (such as taxes, insurance, or retirement contributions), and the final amount they receive as net pay. This record is essential for both employers and employees to accurately track and manage salary payments and deductions.

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  • 34. 

    With direct deposit, an employer transfers net pay electronically into an employee's bank account.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Direct deposit is a method used by employers to electronically transfer an employee's net pay directly into their bank account. This eliminates the need for physical checks and allows for a more convenient and efficient way of receiving payment. Therefore, the statement that an employer transfers net pay electronically into an employee's bank account is true.

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  • 35. 

    The net income ratio will show the rate of return the owners are getting on the money they invested in the company.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The net income ratio does not show the rate of return the owners are getting on the money they invested in the company. Instead, it measures the profitability of the company by comparing its net income to its total revenue. It indicates how efficiently the company is generating profits from its operations, but it does not specifically reflect the return on investment for the owners.

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