Fin Mgmt - Topic 2 Elaborated

Fin Mgmt - Topic 2 Elaborated Accounts payable represents money a firm owes to: Suppliers due to purchases made on credit Lenders under short-terms borrowing agreements Employees Other accounts - Answer - Suppliers due to purchases made on credit The basic balance sheet equation states that Assets are equal to Liabilities plus Owner's equity. This is because all assets are: Financed either by other people's money or by the firm's owners' money. Subject to liquidation. Used as collateral to borrow money. Property of the providers of capital. - Answer - Financed either by other people's money or by the firm's owners' money. (True/False) If you want to understand a firm's operations, cash accounting is a superior tool. - Answer - False The matching principle in accrual accounting requires that: Revenues are matched to the expenses incurred to generate the revenues Revenues should be large enough to match expenses Revenues are matched to the year in which they are booked Expenses are matched to the year in which they are incurred - Answer - Revenues are matched to the expenses incurred to generate the revenues. Which of the following would not be considered an operating expense? Rent expense Depreciation expense Interest expense Non-direct labor expense - Answer - Interest expense The evolution of retained earnings is best described by: Change in retained earnings = net income - dividends Dividends = retained earnings - net income Change in net income = change in dividends + change in retained earnings Net income = revenues - (retained earning + dividends) - Answer - Change in retained earnings = net income - dividends Net Fixed Assets represents: The value of the firm's assets held for use stated at original cost