FINANCIAL ACCOUNTING FOR DECISION MAKERS FINAL
EXAM 2024 Q&A
1) Which of the following is the most correct definition of accounting?
a. The preservation of a systematic, quantitative record of an activity.
b. A system for providing quantitative information, primarily financial in nature, about economic
entities that is intended to be useful in making economic decisions.
c. The procedures and processes used by a company to analyze transactions and handle routine
bookkeeping tasks.
d. An entity without a profit objective, oriented toward providing services efficiently and
effectively. - CORRECT ANSWER✅✅✅b. A system for providing quantitative
information, primarily financial in nature, about economic entities that is intended to be useful in
making economic decisions.
Cash Flow Adequacy Ratio - CORRECT ANSWER✅✅✅Cash flow from operations ÷
(Long-term debt paid + Fixed assets purchased + Cash dividends distributed) Any result higher
than 1 indicates that a firm is generating sufficient cash flow to maintain itself
a business generates $500,000 of cash flows from operations in its most recent year of
operations. During that time, it also paid down $225,000 of debt, acquired $175,000 of fixed
assets, and paid out $75,000 of dividends. Its cash flow adequacy ratio is - CORRECT
ANSWER✅✅✅calculated as:
$500,000 Cash flow from operations ÷ ($225,000 Debt payments + $175,000 Fixed asset
purchases + $75,000 Dividends)
= 1.05 Cash flow adequacy ratio
Statement of Retained Earnings - CORRECT ANSWER✅✅✅The statement that
summarizes the income earned and dividends paid over the life of a business
Managerial Accounting - CORRECT ANSWER✅✅✅INternal- the area of accounting that
focuses on reporting information to internal users. eg product costs, break-even analysis,
budgets, performance evaluation numbers, outsourcing information, sales by store, detailed data
for daily decisions. A competitive tool like a great product, or relationships. Motivated by
,Financial Accounting - CORRECT ANSWER✅✅✅External- It focuses on historical
information.
Only external party transactions. eg for credit analysis, investors use it to estimate the value of
the company reports, investors, summary data for occasional decisions. An unbiased scorecard
that can compare different companies
notes to the financial statements (footnotes) - CORRECT ANSWER✅✅✅clarify and expand
upon the information presented in the financial statements
assets = - CORRECT ANSWER✅✅✅Liabilities + Owner's Equity
Accounting Equation - CORRECT ANSWER✅✅✅Assets = Liabilities + Owner's Equity
Bookkeeping is the preservation - CORRECT ANSWER✅✅✅of a systematic, quantitative
record of an activity. Bookkeeping systems can be very primitive— making marks in a stick to
tally how many sheep you have or moving beads on a string to track the score in a billiards
game. The double-entry bookkeeping system used by businesses today has been in existence for
over 500 years. eg checking account
double-entry bookkeeping - CORRECT ANSWER✅✅✅still in use today (described later in
our discussion of "The Accounting Information System") was developed in the 1300s and 1400s
in Italy
bookeeping vs accounting - CORRECT ANSWER✅✅✅bookkeeping just write it all down.
Accounting is the next level where you can organize and analyze and forecast and make
decisions
2) Businesses use accounting systems to
a. Analyze transactions
b. Handle routine bookkeeping tasks
c. Evaluate the performance and health of the business
d. All of the above - CORRECT ANSWER✅✅✅d. All of the above
,accounting - CORRECT ANSWER✅✅✅is formally defined as a system of providing
"quantitative information, primarily financial in nature, about economic entities that is intended
to be useful in making economic decisions.
accounting system - CORRECT ANSWER✅✅✅is used by a business (1) to handle routine
bookkeeping tasks and (2) to structure the information so it can be used to evaluate the
performance and status of the business. These two functions of an accounting system
Describe the three financial statements. - CORRECT ANSWER✅✅✅The balance sheet
The income statement
The statement of cash flows
Balance Sheet - CORRECT ANSWER✅✅✅A point in time. reports a company's assets,
liabilities, and owners' equity. A snapshot. It reports the financial position of a firm at a point in
time and lists the company's resources (assets-short term and long term), obligations (liabilities
short term and long term), and net ownership interest (owners' equity). Sources of money to buy
the assets eg. cash and receivables
Income Statement - CORRECT ANSWER✅✅✅How much did you make for this quarter or
this year. A period of time-economic profits created. reports the amount of net income earned by
a company during a period. Net income is the excess of a company's revenues over its expenses.
It reports the financial performance of a firm over a period of time. A financial statement
showing the revenue (assets generated) and expenses for a fiscal period. eg. revenues and
expenses
Net Income - CORRECT ANSWER✅✅✅the difference between total revenue and total
expenses when total revenue is greater. The bottom line. It can be put back into the business or
cashed out as dividens
Statement of Cash Flows - CORRECT ANSWER✅✅✅For a period of time like a year. The
statement of cash flows reports the amount of cash collected and paid out (short term) by a
company in the following three types of activities: operating, investing, and financing over a
period of time. tells the cash in and cash out. Where did the cash come from and what do you
, spend it on. A detailed reconciliation of why cash changed. are we going to be able to pay
employees or are we short? Its on one page and a forecasting tool
Financial Statements - CORRECT ANSWER✅✅✅Reduce the overall cloud of financial
uncertainty so lenders and investors can target the financing and investing to the need if its low
risk or high risk. Financial reports that summarize the financial condition and operations of a
business eg. income statement, balance sheet, statement of cash flow
retained earnings - CORRECT ANSWER✅✅✅the amount of net income retained in the
corporation
current assets - CORRECT ANSWER✅✅✅cash and other assets expected to be exchanged
for cash or consumed within a year. eg cash, inventory, and accounts recievalbe
Operating Cycle - CORRECT ANSWER✅✅✅The period of time between the purchase of
inventory and the collection of any receivable from the sale of the inventory.
Lenders - CORRECT ANSWER✅✅✅Banks use companies' financial statements in making
decisions about commercial loans. The financial statements are useful because they help the
lender predict the future ability of the borrower to repay the loan.
Investors - CORRECT ANSWER✅✅✅Investors want information to help them estimate
how much cash they can expect to directly receive from the business in the future if they invest
in it now
Company Management - CORRECT ANSWER✅✅✅Managers use financial accounting
data to formulate company goals, to compute bonuses for employees, and to illuminate company
weaknesses.
Suppliers and Customers - CORRECT ANSWER✅✅✅and employees use financial
statements to tell them about the long-run prospects of a company.
EXAM 2024 Q&A
1) Which of the following is the most correct definition of accounting?
a. The preservation of a systematic, quantitative record of an activity.
b. A system for providing quantitative information, primarily financial in nature, about economic
entities that is intended to be useful in making economic decisions.
c. The procedures and processes used by a company to analyze transactions and handle routine
bookkeeping tasks.
d. An entity without a profit objective, oriented toward providing services efficiently and
effectively. - CORRECT ANSWER✅✅✅b. A system for providing quantitative
information, primarily financial in nature, about economic entities that is intended to be useful in
making economic decisions.
Cash Flow Adequacy Ratio - CORRECT ANSWER✅✅✅Cash flow from operations ÷
(Long-term debt paid + Fixed assets purchased + Cash dividends distributed) Any result higher
than 1 indicates that a firm is generating sufficient cash flow to maintain itself
a business generates $500,000 of cash flows from operations in its most recent year of
operations. During that time, it also paid down $225,000 of debt, acquired $175,000 of fixed
assets, and paid out $75,000 of dividends. Its cash flow adequacy ratio is - CORRECT
ANSWER✅✅✅calculated as:
$500,000 Cash flow from operations ÷ ($225,000 Debt payments + $175,000 Fixed asset
purchases + $75,000 Dividends)
= 1.05 Cash flow adequacy ratio
Statement of Retained Earnings - CORRECT ANSWER✅✅✅The statement that
summarizes the income earned and dividends paid over the life of a business
Managerial Accounting - CORRECT ANSWER✅✅✅INternal- the area of accounting that
focuses on reporting information to internal users. eg product costs, break-even analysis,
budgets, performance evaluation numbers, outsourcing information, sales by store, detailed data
for daily decisions. A competitive tool like a great product, or relationships. Motivated by
,Financial Accounting - CORRECT ANSWER✅✅✅External- It focuses on historical
information.
Only external party transactions. eg for credit analysis, investors use it to estimate the value of
the company reports, investors, summary data for occasional decisions. An unbiased scorecard
that can compare different companies
notes to the financial statements (footnotes) - CORRECT ANSWER✅✅✅clarify and expand
upon the information presented in the financial statements
assets = - CORRECT ANSWER✅✅✅Liabilities + Owner's Equity
Accounting Equation - CORRECT ANSWER✅✅✅Assets = Liabilities + Owner's Equity
Bookkeeping is the preservation - CORRECT ANSWER✅✅✅of a systematic, quantitative
record of an activity. Bookkeeping systems can be very primitive— making marks in a stick to
tally how many sheep you have or moving beads on a string to track the score in a billiards
game. The double-entry bookkeeping system used by businesses today has been in existence for
over 500 years. eg checking account
double-entry bookkeeping - CORRECT ANSWER✅✅✅still in use today (described later in
our discussion of "The Accounting Information System") was developed in the 1300s and 1400s
in Italy
bookeeping vs accounting - CORRECT ANSWER✅✅✅bookkeeping just write it all down.
Accounting is the next level where you can organize and analyze and forecast and make
decisions
2) Businesses use accounting systems to
a. Analyze transactions
b. Handle routine bookkeeping tasks
c. Evaluate the performance and health of the business
d. All of the above - CORRECT ANSWER✅✅✅d. All of the above
,accounting - CORRECT ANSWER✅✅✅is formally defined as a system of providing
"quantitative information, primarily financial in nature, about economic entities that is intended
to be useful in making economic decisions.
accounting system - CORRECT ANSWER✅✅✅is used by a business (1) to handle routine
bookkeeping tasks and (2) to structure the information so it can be used to evaluate the
performance and status of the business. These two functions of an accounting system
Describe the three financial statements. - CORRECT ANSWER✅✅✅The balance sheet
The income statement
The statement of cash flows
Balance Sheet - CORRECT ANSWER✅✅✅A point in time. reports a company's assets,
liabilities, and owners' equity. A snapshot. It reports the financial position of a firm at a point in
time and lists the company's resources (assets-short term and long term), obligations (liabilities
short term and long term), and net ownership interest (owners' equity). Sources of money to buy
the assets eg. cash and receivables
Income Statement - CORRECT ANSWER✅✅✅How much did you make for this quarter or
this year. A period of time-economic profits created. reports the amount of net income earned by
a company during a period. Net income is the excess of a company's revenues over its expenses.
It reports the financial performance of a firm over a period of time. A financial statement
showing the revenue (assets generated) and expenses for a fiscal period. eg. revenues and
expenses
Net Income - CORRECT ANSWER✅✅✅the difference between total revenue and total
expenses when total revenue is greater. The bottom line. It can be put back into the business or
cashed out as dividens
Statement of Cash Flows - CORRECT ANSWER✅✅✅For a period of time like a year. The
statement of cash flows reports the amount of cash collected and paid out (short term) by a
company in the following three types of activities: operating, investing, and financing over a
period of time. tells the cash in and cash out. Where did the cash come from and what do you
, spend it on. A detailed reconciliation of why cash changed. are we going to be able to pay
employees or are we short? Its on one page and a forecasting tool
Financial Statements - CORRECT ANSWER✅✅✅Reduce the overall cloud of financial
uncertainty so lenders and investors can target the financing and investing to the need if its low
risk or high risk. Financial reports that summarize the financial condition and operations of a
business eg. income statement, balance sheet, statement of cash flow
retained earnings - CORRECT ANSWER✅✅✅the amount of net income retained in the
corporation
current assets - CORRECT ANSWER✅✅✅cash and other assets expected to be exchanged
for cash or consumed within a year. eg cash, inventory, and accounts recievalbe
Operating Cycle - CORRECT ANSWER✅✅✅The period of time between the purchase of
inventory and the collection of any receivable from the sale of the inventory.
Lenders - CORRECT ANSWER✅✅✅Banks use companies' financial statements in making
decisions about commercial loans. The financial statements are useful because they help the
lender predict the future ability of the borrower to repay the loan.
Investors - CORRECT ANSWER✅✅✅Investors want information to help them estimate
how much cash they can expect to directly receive from the business in the future if they invest
in it now
Company Management - CORRECT ANSWER✅✅✅Managers use financial accounting
data to formulate company goals, to compute bonuses for employees, and to illuminate company
weaknesses.
Suppliers and Customers - CORRECT ANSWER✅✅✅and employees use financial
statements to tell them about the long-run prospects of a company.
