BUS 1350 EXAM 3 PRACTICE SOLUTION
STUDY SHEET QUESTIONS AND DETAILED
ANSWERS
●● What are the benefits of accounting for a business?
Answer: Provides essential information for decision-making and ensures
accurate financial management.
●● What is the accounting equation?
Answer: Assets = Liabilities + Owners' Equity
●● What does a balance sheet detail?
Answer: Information about a business's assets, liabilities, and owner's
equity.
●● What are current assets?
Answer: Resources owned by the business that are expected to be used
within one year.
●● What are non-current assets?
Answer: Resources owned by the business that are expected to be used
for more than one year.
,●● What are liabilities?
Answer: Debts a business owes, such as loans and accounts payable.
●● What is owner's equity?
Answer: The amount of money remaining if a business sold all its assets
and paid off its liabilities.
●● What is retained earnings?
Answer: Profits that are not paid out and are reinvested back into the
company.
●● What does the income statement summarize?
Answer: Revenues, expenses, gains or losses, resulting in net income for
a period.
●● What is net income?
Answer: The amount of money that remains from revenues after
expenses are deducted.
●● What is gross margin?
Answer: The difference between net sales and the cost of goods sold.
●● What does the cash flow statement show?
, Answer: What happened to the business's cash during a period, divided
into operating, investing, and financing activities.
●● What is the current ratio?
Answer: Current assets divided by current liabilities; measures liquidity.
●● What does a current ratio greater than 1 indicate?
Answer: The business has more current assets than short-term liabilities.
●● What is the debt to equity ratio?
Answer: Total liabilities divided by owners' equity; measures financial
risk.
●● What does a debt to equity ratio greater than 1 indicate?
Answer: The business has more debt than equity.
●● What is return on equity?
Answer: Net income divided by owners' equity; measures profitability.
●● What are internal controls?
Answer: Activities to protect assets, reduce errors, and safeguard
operations.
STUDY SHEET QUESTIONS AND DETAILED
ANSWERS
●● What are the benefits of accounting for a business?
Answer: Provides essential information for decision-making and ensures
accurate financial management.
●● What is the accounting equation?
Answer: Assets = Liabilities + Owners' Equity
●● What does a balance sheet detail?
Answer: Information about a business's assets, liabilities, and owner's
equity.
●● What are current assets?
Answer: Resources owned by the business that are expected to be used
within one year.
●● What are non-current assets?
Answer: Resources owned by the business that are expected to be used
for more than one year.
,●● What are liabilities?
Answer: Debts a business owes, such as loans and accounts payable.
●● What is owner's equity?
Answer: The amount of money remaining if a business sold all its assets
and paid off its liabilities.
●● What is retained earnings?
Answer: Profits that are not paid out and are reinvested back into the
company.
●● What does the income statement summarize?
Answer: Revenues, expenses, gains or losses, resulting in net income for
a period.
●● What is net income?
Answer: The amount of money that remains from revenues after
expenses are deducted.
●● What is gross margin?
Answer: The difference between net sales and the cost of goods sold.
●● What does the cash flow statement show?
, Answer: What happened to the business's cash during a period, divided
into operating, investing, and financing activities.
●● What is the current ratio?
Answer: Current assets divided by current liabilities; measures liquidity.
●● What does a current ratio greater than 1 indicate?
Answer: The business has more current assets than short-term liabilities.
●● What is the debt to equity ratio?
Answer: Total liabilities divided by owners' equity; measures financial
risk.
●● What does a debt to equity ratio greater than 1 indicate?
Answer: The business has more debt than equity.
●● What is return on equity?
Answer: Net income divided by owners' equity; measures profitability.
●● What are internal controls?
Answer: Activities to protect assets, reduce errors, and safeguard
operations.
