ACCT 2010 - Chapter 9 Test Questions and Correct Answers
What are the two ways businesses finance the acquisition of their assets? 1. Funds supplied by creditors (debt - liability) 2. Funds provided by owners (equity) What is the term given to a mixture of debt and equity a business uses? Capital structure Two key factors managers consider when borrowing money 1. Risk 2. Cost Liabilities Debts or obligations that result from past transactions, which will be paid from with assets or services Current liabilities Short-term debts and obligations that will be paid back within the current year (or operating cycle) Liquidity The ability to pay current obligations Quick ratio Quick ratio = Quick Assets / Current Liabilities Quick Assets include cash, marketable securities and accounts receivable. Does the company currently have the resources to pay its short-term debt? - High quick ratio suggest good liquidity - Too high a ratio suggest inefficient use of resource - The ratio can be influenced by small variations in the flow of transactions - Ratio can be manipulated by paying back big loans near the date of ratio calculation List four current liabilities 1. Accounts payable 2. Accrued liabilities 3. Notes payable 4. Deferred revenues
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