Business Accountant 14 Exam
Questions with Complete Solutions
expenses - Answer-The costs of generating revenues.
financial accounting - Answer-Accounting that focuses on preparing external
financial reports that are used by outsiders such as lenders, suppliers, investors, and
government agencies to assess the financial strength of a business.
Financial Accounting Standards Board (FASB) - Answer-The private organization
that is responsible for establishing financial accounting standards in the United
States.
fixed assets - Answer-Long-term assets used by a firm for more than a year such as
land, buildings, and machinery.
generally accepted accounting principles (GAAP) - Answer-The financial accounting
standards followed by accountants in the United States when preparing financial
statements.
gross profit - Answer-The amount a company earns after paying to produce or buy
its products but before deducting operating expenses.
gross sales - Answer-The total dollar amount of a company's sales.
income statement - Answer-A financial statement that summarizes a firm's revenues
and expenses and shows its total profit or loss over a period of time.
intangible assets - Answer-Long-term assets with no physical existence, such as
patents, copyrights, trademarks, and goodwill.
inventory turnover ratio - Answer-The ratio of cost of goods sold to average
inventory; measures the speed with which inventory moves through a firm and is
turned into sales.
liabilities - Answer-What a firm owes to its creditors; also called debts.
liquidity - Answer-The speed with which an asset can be converted to cash.
liquidity ratios - Answer-Ratios that measure a firm's ability to pay its short-term
debts as they come due.
long-term liabilities - Answer-Claims that come due more than one year after the
date of the balance sheet.
managerial accounting - Answer-Accounting that provides financial information that
managers inside the organization can use to evaluate and make decisions about
current and future operations.
, net loss - Answer-The amount obtained by subtracting all of a firm's expenses from
its revenues, when the expenses are more than the revenues.
net profit (net income) - Answer-The amount obtained by subtracting all of a firm's
expenses from its revenues, when the revenues are more than the expenses.
net profit margin - Answer-The ratio of net profit to net sales; also called return on
sales. It measures the percentage of each sales dollar remaining after all expenses,
including taxes, have been deducted.
net sales - Answer-The amount left after deducting sales discounts and returns and
allowances from gross sales.
net working capital - Answer-The amount obtained by subtracting total current
liabilities from total current assets; used to measure a firm's liquidity.
operating expenses - Answer-The expenses of running a business that are not
directly related to producing or buying its products.
owners' equity - Answer-The total amount of investment in the firm minus any
liabilities; also called net worth.
private accountants often perform ___ audits while public accountants also conduct
_____ audits - Answer-Accountants who are employed to serve one particular
organization.
profitability ratios - Answer-Ratios that measure how well a firm is using its resources
to generate profit and how efficiently it is being managed.
public accountants - Answer-Independent accountants who serve organizations and
individuals on a fee basis.
ratio analysis - Answer-The calculation and interpretation of financial ratios using
data taken from the firm's financial statements in order to assess its condition and
performance.
retained earnings - Answer-The amounts left over from profitable operations since
the firm's beginning; equal to total profits minus all dividends paid to stockholders.
return on equity (ROE) - Answer-The ratio of net profit to total owners' equity;
measures the return that owners receive on their investment in the firm.
revenues - Answer-The dollar amount of a firm's sales plus any other income it
received from sources such as interest, dividends, and rents.
Sarbanes-Oxley Act - Answer-Legislation passed in 2002 that sets new standards for
auditor independence, financial disclosure and reporting, and internal controls;
establishes an independent oversight board; and restricts the types of non-audit
services auditors can provide audit clients.
Questions with Complete Solutions
expenses - Answer-The costs of generating revenues.
financial accounting - Answer-Accounting that focuses on preparing external
financial reports that are used by outsiders such as lenders, suppliers, investors, and
government agencies to assess the financial strength of a business.
Financial Accounting Standards Board (FASB) - Answer-The private organization
that is responsible for establishing financial accounting standards in the United
States.
fixed assets - Answer-Long-term assets used by a firm for more than a year such as
land, buildings, and machinery.
generally accepted accounting principles (GAAP) - Answer-The financial accounting
standards followed by accountants in the United States when preparing financial
statements.
gross profit - Answer-The amount a company earns after paying to produce or buy
its products but before deducting operating expenses.
gross sales - Answer-The total dollar amount of a company's sales.
income statement - Answer-A financial statement that summarizes a firm's revenues
and expenses and shows its total profit or loss over a period of time.
intangible assets - Answer-Long-term assets with no physical existence, such as
patents, copyrights, trademarks, and goodwill.
inventory turnover ratio - Answer-The ratio of cost of goods sold to average
inventory; measures the speed with which inventory moves through a firm and is
turned into sales.
liabilities - Answer-What a firm owes to its creditors; also called debts.
liquidity - Answer-The speed with which an asset can be converted to cash.
liquidity ratios - Answer-Ratios that measure a firm's ability to pay its short-term
debts as they come due.
long-term liabilities - Answer-Claims that come due more than one year after the
date of the balance sheet.
managerial accounting - Answer-Accounting that provides financial information that
managers inside the organization can use to evaluate and make decisions about
current and future operations.
, net loss - Answer-The amount obtained by subtracting all of a firm's expenses from
its revenues, when the expenses are more than the revenues.
net profit (net income) - Answer-The amount obtained by subtracting all of a firm's
expenses from its revenues, when the revenues are more than the expenses.
net profit margin - Answer-The ratio of net profit to net sales; also called return on
sales. It measures the percentage of each sales dollar remaining after all expenses,
including taxes, have been deducted.
net sales - Answer-The amount left after deducting sales discounts and returns and
allowances from gross sales.
net working capital - Answer-The amount obtained by subtracting total current
liabilities from total current assets; used to measure a firm's liquidity.
operating expenses - Answer-The expenses of running a business that are not
directly related to producing or buying its products.
owners' equity - Answer-The total amount of investment in the firm minus any
liabilities; also called net worth.
private accountants often perform ___ audits while public accountants also conduct
_____ audits - Answer-Accountants who are employed to serve one particular
organization.
profitability ratios - Answer-Ratios that measure how well a firm is using its resources
to generate profit and how efficiently it is being managed.
public accountants - Answer-Independent accountants who serve organizations and
individuals on a fee basis.
ratio analysis - Answer-The calculation and interpretation of financial ratios using
data taken from the firm's financial statements in order to assess its condition and
performance.
retained earnings - Answer-The amounts left over from profitable operations since
the firm's beginning; equal to total profits minus all dividends paid to stockholders.
return on equity (ROE) - Answer-The ratio of net profit to total owners' equity;
measures the return that owners receive on their investment in the firm.
revenues - Answer-The dollar amount of a firm's sales plus any other income it
received from sources such as interest, dividends, and rents.
Sarbanes-Oxley Act - Answer-Legislation passed in 2002 that sets new standards for
auditor independence, financial disclosure and reporting, and internal controls;
establishes an independent oversight board; and restricts the types of non-audit
services auditors can provide audit clients.
