PRM Exam 2 Exam with Questions and
Correct Answers Latest Updated 2025
Capital needs for setup - CORRECT ANSWERS (operations taking place before business
opening)
Lease deposit and renovation
Equipment and fixtures
Inventory
Licenses and permits
Capital needs for start-up - CORRECT ANSWERS (used just prior to business opening; 2-
3 weeks before and after opening)
Decorative fixtures
Office supplies
Promotional expenditure
Types of capital and definitions - CORRECT ANSWERS Working capital: money available
to carry on day-to day activities
Short-term capital: money borrowed to finance obligations over short time period
Long-term capital: longer time period (as much as 10 years)
Sources for long-term capital - CORRECT ANSWERS Personal funds
Equity financing (selling partial ownership to investors)
Debt financing: loans with interest
Sources of equity financing - CORRECT ANSWERS Partner
-General: helps with management
-Limited: not involved in mgmt
Relative
Friend
Venture capitalist
Stocks
-Common: max return on investment
-Preferred: gives investor first preference on company assets after debtors receive their
money
-Convertible preferred stocks
Sources of debt financing - CORRECT ANSWERS Commercial banks
Commercial finance companies
Life insurance companies
Consumer finance companies
Government (Small Business Administration)
, Suppliers
Miscellaneous
What is the business entity concept? - CORRECT ANSWERS Every business is treated as
a separate entity, distinct from owners and every other business
What is the cost principle? - CORRECT ANSWERS All goods and services purchased are
recorded at cost (does not reflect current worth)
What is the stable dollar concept? - CORRECT ANSWERS Books are not adjusted based
on changing value of the dollar (inflation, deflation...)
What is accrual accounting? - CORRECT ANSWERS Revenues recognized when
good/services are rendered, not necessarily when cash is received
Prepaid expenses are considered what is on the balance sheet? - CORRECT ANSWERS
Assets (though they become expenses as they are used)
Define current assets - CORRECT ANSWERS Cash assets or assets that will become
cash w/in a year (cash, accounts receivable, inventory; short-term investments may be
too)
Define long-term assets - CORRECT ANSWERS Assets that would take a long time (over
a year) to turn into cash
Long-term asset types and definitions/examples - CORRECT ANSWERS Fixed assets:
property, buildings, equipment, fixtures
Investments
Intangible assets (rarely included on a balance sheet)
Define unearned revenue; place on balance sheet - CORRECT ANSWERS Business gets
paid for good/services before supplying those goods/services
Liability until those goods/services are delivered
Define current liabilities - CORRECT ANSWERS Obligations that must be paid within a
year (accounts payable, short-term notes payable, wages)
Define long-term liabilities - CORRECT ANSWERS Obligations due more than a year from
the balance-sheet date
Owner's equity aka - CORRECT ANSWERS Net worth
Net worth aka - CORRECT ANSWERS Owner's equity
If you purchase a building for $100,000 using $20,000 of your own money and $80,000
from the bank, what is the owner's equity? - CORRECT ANSWERS 20,000
Correct Answers Latest Updated 2025
Capital needs for setup - CORRECT ANSWERS (operations taking place before business
opening)
Lease deposit and renovation
Equipment and fixtures
Inventory
Licenses and permits
Capital needs for start-up - CORRECT ANSWERS (used just prior to business opening; 2-
3 weeks before and after opening)
Decorative fixtures
Office supplies
Promotional expenditure
Types of capital and definitions - CORRECT ANSWERS Working capital: money available
to carry on day-to day activities
Short-term capital: money borrowed to finance obligations over short time period
Long-term capital: longer time period (as much as 10 years)
Sources for long-term capital - CORRECT ANSWERS Personal funds
Equity financing (selling partial ownership to investors)
Debt financing: loans with interest
Sources of equity financing - CORRECT ANSWERS Partner
-General: helps with management
-Limited: not involved in mgmt
Relative
Friend
Venture capitalist
Stocks
-Common: max return on investment
-Preferred: gives investor first preference on company assets after debtors receive their
money
-Convertible preferred stocks
Sources of debt financing - CORRECT ANSWERS Commercial banks
Commercial finance companies
Life insurance companies
Consumer finance companies
Government (Small Business Administration)
, Suppliers
Miscellaneous
What is the business entity concept? - CORRECT ANSWERS Every business is treated as
a separate entity, distinct from owners and every other business
What is the cost principle? - CORRECT ANSWERS All goods and services purchased are
recorded at cost (does not reflect current worth)
What is the stable dollar concept? - CORRECT ANSWERS Books are not adjusted based
on changing value of the dollar (inflation, deflation...)
What is accrual accounting? - CORRECT ANSWERS Revenues recognized when
good/services are rendered, not necessarily when cash is received
Prepaid expenses are considered what is on the balance sheet? - CORRECT ANSWERS
Assets (though they become expenses as they are used)
Define current assets - CORRECT ANSWERS Cash assets or assets that will become
cash w/in a year (cash, accounts receivable, inventory; short-term investments may be
too)
Define long-term assets - CORRECT ANSWERS Assets that would take a long time (over
a year) to turn into cash
Long-term asset types and definitions/examples - CORRECT ANSWERS Fixed assets:
property, buildings, equipment, fixtures
Investments
Intangible assets (rarely included on a balance sheet)
Define unearned revenue; place on balance sheet - CORRECT ANSWERS Business gets
paid for good/services before supplying those goods/services
Liability until those goods/services are delivered
Define current liabilities - CORRECT ANSWERS Obligations that must be paid within a
year (accounts payable, short-term notes payable, wages)
Define long-term liabilities - CORRECT ANSWERS Obligations due more than a year from
the balance-sheet date
Owner's equity aka - CORRECT ANSWERS Net worth
Net worth aka - CORRECT ANSWERS Owner's equity
If you purchase a building for $100,000 using $20,000 of your own money and $80,000
from the bank, what is the owner's equity? - CORRECT ANSWERS 20,000
