Test bank for anybodys business 1st edition by van syckle

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Anybody’s Business TIF questions: Chapter 1
True/False
1) Whenever your standard of living goes up, so does your quality of life.
Answer: FALSE
Diff: Easy
Page Ref: 4
Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.
2) Net profit, when used alone, shows a company’s true financial health.
Answer: FALSE
Diff: Easy
Page Ref: 7
Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.
3) A budget quantifies all of a company’s expected inflows and outflows of cash.
Answer: TRUE
Diff: Easy
Page Ref: 9
Objective: Recognize cash flow and how to interpret a cash flow statement.
4) Income and revenue are not the same thing.
Answer: TRUE
Diff: EASY
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.
5) Revenue can come from goods and services, but not from experiences that customers
have.
Answer: FALSE
Diff: Easy
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.

6) Not-for-profit organizations do not need net income.
Answer: FALSE
Diff: Easy
Page Ref: 14
Objective: Recognize profit and how to interpret an income statement.
7) A company can still have cash flow problems if it is profitable.
Answer: FALSE
Diff: Easy
Page Ref: 17
Objective: Recognize profit and how to interpret an income statement.
Multiple Choice
8) Which of the following is NOT a financial statement?
A) cash flow statement

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B) general ledger
C) income statement
D) balance sheet
Answer: B
Diff: Easy
Page Ref: 4
Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.
9) Which of the following is NOT a factor affecting standard of living?
A) your income
B) the quality of goods and services available to you
C) tour well-being

D) the consumption patterns of the people in your community
Answer: C
Diff: Moderate
Page Ref: 4
Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.
10) A publicly traded company is
A) a company that is family-owned and –founded.
B) a company that is funded primarily through federal income taxes levied by the
government.
C) a company that is owned by its employees.
D) a company that issues stock for people to buy on a stock exchange or other
markets.
Answer: D
Diff: Easy
Page Ref: 5
Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.
11) An annual report is
A) a description of a firm’s financials, distributed to everyone who owns stock in the
firm.
B) a statement describing market growth in a specific industry, such as automotive or
telecommunications.
C) a set of documents explaining trends and challenges in a nation’s economy.
D) a booklet published by the Treasury Department each year outlining returns on
Treasury bill investments.
Answer: A
Diff: Moderate
Page Ref: 5
Objective: Explain why financial statements matter to businesses and the people who

own them, manage them, and work in them.
12) Which of the following is NOT true about open book management?
A) Employees are encouraged to suggest ways to improve the company’s
performance.

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B) Employees directly review their managers’ on-the-job performance.
C) Employees have access to the firm’s financial statements and other information
about the company’s performance.
D) Employees see how their performance affects the company’s performance.
Answer: B
Diff: Moderate
Page Ref: 5
Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.
13) Which of the following is the most likely objection to open book management?
A) Employees will feel disrespected by management if the company’s financial
performance is poor.
B) The company will be violating laws about keeping financial information
confidential.
C) The firm’s financial information will get into the hands of competitors.
D) Employees will have difficulty seeing the connection between their performance
and the company’s.
Answer: C
Diff: Moderate
Page Ref: 6
Objective: Explain why financial statements matter to businesses and the people who

own them, manage them, and work in them.
14) Open book management improves employees’ quality of life because
A) it creates a work environment characterized by reduced stress.
B) it ensures employees a steady paycheck.
C) it enables employees to buy higher-quality goods and services.
D) it frees employees from having to contribute ideas for improving the company’s
performance.
Answer: A
Diff: Moderate
Page Ref: 6
Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.
15) The “bottom line” is
A) the lowest possible revenue a company can earn without having to declare
bankruptcy.
B) the final decision a CEO makes regarding whether to sell the company or divest a
division.
C) an accounting calculation that figures out a company’s financial performance
based on net profit.
D) an equation showing how much market share a company lost during the previous
fiscal year.
Answer: C
Diff: Easy
Page Ref: 7
Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.

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16) Which of the following is a well-stated business goal?
A) “Strengthen our ability to manufacture products without error.”
B) “Enhance morale and engagement throughout our workforce.”
C) “Improve our ability to innovate new products and services.”
D) “Increase revenues twofold by the end of the fiscal year.”
Answer: D
Diff: Moderate
Page Ref: 7
Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.
17) In a company using open book management, which of the following incentives would
likely motivate the majority of employees to improve their performance?
A) vacations to resorts on distant, exotic locations
B) gift certificates to local cultural and sports events
C) a profit-sharing or equity-sharing program
D) a bonus check that is a specific percentage of employees’ pay
Answer: C
Diff: Moderate
Page Ref: 7
Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.
18) Financial statements help managers and employees
A) understand their company’s previous, current, and possibly future performance.
B) improve their standard of living but not their quality of life.
C) select other companies that may be worth investing in.
D) distinguish differences between their company’s and rival companies’ offerings.
Answer: A
Diff: Moderate
Page Ref: 8

Objective: Explain why financial statements matter to businesses and the people who
own them, manage them, and work in them.
19) Which of the following are NOT reflected in a company’s cash flow statement?
A) purchases of office supplies needed by the business
B) payments from customers for products
C) monies the company owes investors
D) rent checks from a property the company is subleasing.
Answer: C
Diff: Challenging Page Ref: 9
Objective: Recognize cash flow and how to interpret a cash flow statement.
20) A budget
A) spells out which vacant positions a company will need to fill with new hires.
B) quantifies all of a company’s expected inflows and outflows of cash.
C) shows the trends in a firm’s revenues and profits over the previous three years.
D) depicts salary differences between executives, managers, and employees.

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Answer: B
Diff: Easy
Page Ref: 9
Objective: Recognize cash flow and how to interpret a cash flow statement.
21) You are comparing cash flow statements for your business from the current month
and the previous month. Which of the following would you be able to figure out?
A) what denominations the business’s cash is in
B) whether the business has cash
C) how much cash the business has
D) whether the business has more or less cash this month than last month

Answer: A
Diff: Easy
Page Ref: 10
Objective: Recognize cash flow and how to interpret a cash flow statement.
22) Which of the following indicates that a company has negative cash flow?
A) The company’s cash on hand is unpredictable from month to month.
B) The company’s cash is in the form of small bills.
C) The company has more cash now than it did the previous month.
D) The company has less cash now than it did the previous month.
Answer: D
Diff: Easy
Page Ref: 11
Objective: Recognize cash flow and how to interpret a cash flow statement.
23) A company raises the price on its products and sells more of them. What is the impact
on its cash flow?
A) Cash inflow increases.
B) Cash inflow decreases.
C) Cash outflow increases.
D) Cash outflow decreases.
Answer: A
Diff: Moderate
Page Ref: 11
Objective: Recognize cash flow and how to interpret a cash flow statement.
24) How would you apply the principle of “paying yourself first”?
A) Every time you get paid, put most of the money into a checking account that you
can easily access.
B) Every time you get paid, use a set amount of money to buy a small luxury item
you’ve been wanting.
C) Every time you get paid, transfer a set amount of money to a savings account or
401(k).

D) Every time you get paid, pay your most important bills first and save the rest of
the money.
Answer: C
Diff: Moderate
Page Ref: 11
Objective: Recognize cash flow and how to interpret a cash flow statement.

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25) What is an important benefit of the practice of paying yourself first?
A) The practice enables you to treat yourself to lavish purchases.
B) You keep all your money in a liquid form that you can easily access as needed.
C) You can pay off your largest bills in a more timely manner.
D) The money you save will create personal cash inflow by earning interest.
Answer: D
Diff: Moderate
Page Ref: 11
Objective: Recognize cash flow and how to interpret a cash flow statement.
26) Interest is
A) the fee that a bank or other institution pays you for the use of your money.
B) the fee that you pay a bank in order to use a personal or business checking
account.
C) the money you set aside in a savings account every time you get paid.
D) the money taken out of your paycheck to pay taxes.
Answer: A
Diff: Easy
Page Ref: 11
Objective: Recognize cash flow and how to interpret a cash flow statement.

27) Suppose you have put $50 in an interest-bearing account and you want to double the
amount of money in the account. What calculation would you use to determine how
many years it would take to double your money?
A) Divide 50 by the interest rate and add 2.
B) Divide 72 by the interest rate.
C) Multiply the interest rate by 2.
D) Add the interest rate to 5.
Answer: B
Diff: Moderate
Page Ref: 12
Objective: Recognize cash flow and how to interpret a cash flow statement.
28) How does the Rule of 72 calculation work?
A) Subtract the interest rate from 72.
B) Divide 72 by the interest rate.
C) Multiply the interest rate by 72.
D) Add the interest rate to 72.
Answer: B
Diff: Moderate
Page Ref: 12
Objective: Recognize cash flow and how to interpret a cash flow statement.
29) You have saved $200 in an interest-bearing account and plan to leave it there for 5
years. How would you calculate the interest you would need to earn in order to
double your money in those 5 years?
A) Divide 72 by the number of years you have to save.
B) Multiply 72 by the number of years you have to save.
C) Multiply 5 by 2, then subtract the product from 72.
D) Divide the number of years you have to save by 72.

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Answer: A
Diff: Moderate
Page Ref: 12
Objective: Recognize cash flow and how to interpret a cash flow statement.
30) In addition to cash-in and cash-out transactions, a cash flow statement shows
A) cash a company’s creditors have on hand.
B) the profit a company earned in the most recent quarter.
C) a company’s beginning and ending cash balances.
D) amounts a company owes suppliers.
Answer: C
Diff: Easy
Page Ref: 12
Objective: Recognize cash flow and how to interpret a cash flow statement.
31) What is another term for net profit?
A) net cash
B) net income
C) net revenue
D) net value
Answer: B
Diff: Easy
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.
31) What is net profit?
A) the amount of money a business has paid to its suppliers over one year
B) the amount of money a business has in the bank at any one time
C) the amount of money a business brings in from customers in one year
D) the amount of money remaining after a business has paid all its expenses
Answer: D

Diff: Easy
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.
33) What is another term for income statement?
A) profit and loss statement
B) general ledger statement
C) business value statement
D) revenue and expense statement
Answer: A
Diff: Easy
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.
34) An income statement measures
A) a company’s budget for the coming year and the resources needed to fund the
projects in the budget.
B) a company’s cash flow recorded over the course of one year of selling to
customers.

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C) a company’s net profit by tracking the firm’s revenues and expenses during a given
period.
D) a company’s debts and other liabilities incurred by its strategic plan executed over
the previous year.
Answer: C
Diff: Moderate
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.

35) Income is
A) the amount of cash a company deposits in its bank during one year.
B) the amount of cash a company expects to bring in during the coming year.
C) the amount of money a company generates during a period of time.
D) the total amount of money received by a company for a good, service, or
experience.
Answer: C
Diff: Moderate
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.
36) Revenue is
A) the amount of cash a company deposits in its bank during one year.
B) the amount of cash a company expects to bring in during the coming year.
C) the amount of money a company generates during a period of time.
D) the total amount of money received by a company for a good, service, or
experience.
Answer: D
Diff: Moderate
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.
37) Revenue is recorded
A) only after payment for a sale has been received by the company.
B) when a sale is made, but not necessarily when payment for the sale is received.
C) as soon as a customer has expressed interest in placing an order with a company.
D) when a customer approves the price proposed for a particular good or service.
Answer: B
Diff: Moderate
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.
38) Which of the following is NOT an example of a good?

A) a car
B) a vacation
C) a bottle of shampoo
D) a washing machine
Answer: B
Diff: Easy
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.

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39) Which of the following companies is in the service business?
A) a company that rents cars
B) a company that sells consumer products
C) a company that makes medical devices
D) a company that manufacturers military equipment
Answer: A
Diff: Easy
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.
40) In the equation for calculating a company’s net profit, what do expenses refer to?
A) the invoices sent to the company by the suppliers it is buying from
B) the cash flowing out of the company during the current period
C) the amount of money the company spent on something during a certain time
D) the total amount money the company expects to spend in the coming year
Answer: C
Diff: Moderate
Page Ref: 13

Objective: Recognize profit and how to interpret an income statement.
41) When does a company record its expenses?
A) when the company receives a bill
B) when the company pays a bill
C) when the company’s supplier has put a bill in the mail
D) when the company decides to purchase something
Answer: A
Diff: Moderate
Page Ref: 13
Objective: Recognize profit and how to interpret an income statement.
42) When does an expense become a cash outflow?
A) when a company makes a withdrawal from its bank
B) when a company decides to make a purchase
C) when a company receives a bill
D) when a company pays a bill
Answer: D
Diff: Easy
Page Ref: 14
Objective: Recognize profit and how to interpret an income statement.
43) Expenses are divided into
A) operating expenses and income.
B) cost of revenue and operating expenses.
C) cash out and cash deferred.
D) invoices received and invoices paid.
Answer: B
Diff: Easy
Page Ref: 14
Objective: Recognize profit and how to interpret an income statement.
44) What is another term for cost of revenue?

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A) cost of profit
B) cost of operating income
C) cost of goods sold
D) cost of interest
Answer: C
Diff: Easy
Page Ref: 14
Objective: Recognize profit and how to interpret an income statement.
45) What is cost of revenue?
A) any amount incurred by a company for expenses directly related to sale of a
product
B) amounts a company pays for expenses not directly related to the sale of its product
C) unavoidable expenses that a company incurs when it generates reports on its
financial dealings
D) costs incurred only by companies that sell services rather than tangible goods
Answer: A
Diff: Easy
Page Ref: 14
Objective: Recognize profit and how to interpret an income statement.
46) What are operating expenses?
A) amounts incurred by a company for expenses directly related to sale of a product
B) amounts a company pays for expenses not directly related to the sale of its product
C) unavoidable expenses that a company incurs when it generates reports on its
financial dealings
D) costs incurred only by companies that sell services rather than tangible goods
Answer: B

Diff: Easy
Page Ref: 14
Objective: Recognize profit and how to interpret an income statement.
47) You are a car dealer. Which of the following would your cost of revenue consist of?
A) rent paid to the owner of your building
B) amounts spent on utilities
C) money paid for administrative salaries
D) purchase of cars for resale
Answer: D
Diff: Moderate
Page Ref: 14
Objective: Recognize profit and how to interpret an income statement.
48) You are an antiques dealer. Which of the following would NOT be an example of
your operating expenses?
A) rent paid to the owner of your building
B) amounts spent on utilities
C) money paid for administrative salaries
D) purchase of antiques for resale
Answer: D
Diff: Moderate
Page Ref: 14

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Objective: Recognize profit and how to interpret an income statement.
49) Shareholders are
A) people who own a part of a company and have a vested interest in its profits.
B) people who may or may not own a part of a company but are directly affected by

its activities.
C) computer systems that keep track of a company’s stock price.
D) companies that track the financial performance of a particular industry.
Answer: A
Diff: Easy
Page Ref: 14
Objective: Recognize profit and how to interpret an income statement.
50) Stakeholders are
A) people who own a part of a company and have a vested interest in its profits.
B) people who may or may not own a part of a company but are directly affected by
its activities.
C) computer systems that keep track of a company’s stock price.
D) companies that track the financial performance of a particular industry.
Answer: B
Diff: Easy
Page Ref: 14
Objective: Recognize profit and how to interpret an income statement.
51) A business model is
A) a corporation’s strategy for gathering information about competitors.
B) a prototype for a new product or service a company wants to develop.
C) a physical rendering of how a company’s facilities will be constructed.
D) an organization’s plan for creating value for its stakeholders.
Answer: D
Diff: Easy
Page Ref: 15
Objective: Recognize profit and how to interpret an income statement.
52) The goal of a not-for-profit organization is to
A) eventually advance to for-profit status.
B) earn a profit for its owners.
C) use any money it makes to further the cause or association it promotes.

D) deliver products or services that benefit corporations.
Answer: C
Diff: Easy
Page Ref: 15
Objective: Recognize profit and how to interpret an income statement.
53) The goal of a for-profit organization is to
A) eventually advance to not-for-profit status.
B) earn a profit for its owners.
C) use any money it makes to further the cause or association it promotes.
D) deliver products or services that only benefit charities.
Answer: B

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Diff: Easy
Page Ref: 15
Objective: Recognize profit and how to interpret an income statement.
54) Which two types of income statements are allowed under GAAP?
A) cash and accrual
B) inflow and outflow
C) credit and debit
D) receivable and payable
Answer: A
Diff: Easy
Page Ref: 15
Objective: Recognize profit and how to interpret an income statement.
55) In your business, you record revenue when money comes in from customers, and
record expenses when you pay bills. What basis of accounting are you using?

A) cash
B) income
C) accrual
D) debit
Answer: A
Diff: Moderate
Page Ref: 16
Objective: Recognize profit and how to interpret an income statement.
56) In your business, you record income when you deliver a good or provide a service,
and record expenses when they are incurred, not necessarily when you pay the bills.
What basis of accounting are you using?
A) cash
B) income
C) accrual
D) debit
Answer: C
Diff: Easy
Page Ref: 16
Objective: Recognize profit and how to interpret an income statement.
57) What are accounts receivable?
A) paid bills for products or services a company has sold
B) unpaid bills for products or services a company has sold
C) unpaid bills for expenses a company has incurred
D) paid bills for expenses a company has incurred
Answer: B
Diff: Easy
Page Ref: 16
Objective: Recognize profit and how to interpret an income statement.
58) What are accounts payable?
A) paid bills for products or services a company has sold

B) unpaid bills for products or services a company has sold
C) unpaid bills for expenses a company has incurred

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D) paid bills for expenses a company has incurred
Answer: C
Diff: Easy
Page Ref: 16
Objective: Recognize profit and how to interpret an income statement.
59) Why is that large businesses that have a lot of accounts receivable and payable cannot
use the cash basis of accounting?
A) It doesn’t give them an accurate picture of their net profits for a set period.
B) The law says that such business cannot use the cash basis of accounting.
C) The cash basis of accounting is too complex for large businesses to use.
D) They don’t have IT systems designed to handle the cash basis of accounting.
Answer: A
Diff: Moderate
Page Ref: 16
Objective: Recognize profit and how to interpret an income statement.
60) Which financial statement answers the question “Is my company making a profit”?
A) the balance sheet
B) the general ledger
C) the cash flow statement
D) the income statement
Answer: D
Diff: Easy
Page Ref: 19

Objective: Recognize profit and how to interpret an income statement.
61) Which of the following is NOT a source of cash flow?
A) operating activities
B) investing activities
C) maintenance activities
D) financing activities
Answer: C
Diff: Moderate
Page Ref: 20
Objective: Examine how people make decisions based on their impact on cash flow
and profit.
62) You own a computer company. Activities such as selling computers, buying
components, and assembling the components to make computers are
A) operating activities.
B) investing activities.
C) maintenance activities.
D) financing activities.
Answer: A
Diff: Moderate
Page Ref: 20
Objective: Examine how people make decisions based on their impact on cash flow
and profit.

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63) You own a steel company. You build a state-of-the-art manufacturing facility that lets
your business operate more efficiently and sell more products. Building the facility is
a(n)

A) operating activity.
B) investing activity.
C) maintenance activity.
D) financing activity.
Answer: B
Diff: Moderate
Page Ref: 20
Objective: Examine how people make decisions based on their impact on cash flow
and profit.
64) You own a media company. You decide to issue and sell shares of your company’s
stock. This is a(n)
A) operating activity.
B) investing activity.
C) maintenance activity.
D) financing activity.
Answer: D
Diff: Moderate
Page Ref: 20
Objective: Examine how people make decisions based on their impact on cash flow
and profit.
65) What is an operating activity?
A) an activity that entails the investment in or purchase of assets that could increase a
company’s profitability
B) an activity that requires upgrades to a company’s information technology system
C) an activity that uses or generates cash to keep a company’s daily operations going
D) an activity that involves cash exchanges between a company’s shareholders,
investors, and creditors
Answer: C
Diff: Easy
Page Ref: 20

Objective: Examine how people make decisions based on their impact on cash flow
and profit.
66) What is an investing activity?
A) an activity that entails the purchase of assets that could increase a company’s
profitability
B) an activity that requires upgrades to a company’s information technology system
C) an activity that uses or generates cash to keep a company’s daily operations going
D) an activity that involves cash exchanges between a company’s shareholders,
investors, and creditors
Answer: A
Diff: Easy
Page Ref: 20
Objective: Examine how people make decisions based on their impact on cash flow
and profit.

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67) What is a financial activity?
A) an activity that entails the purchase of assets that could increase a company’s
profitability
B) an activity that requires upgrades to a company’s information technology system
C) an activity that uses or generates cash to keep a company’s daily operations going
D) an activity that involves cash exchanges between a company’s shareholders,
investors, and creditors
Answer: D
Diff: Easy
Page Ref: 20
Objective: Examine how people make decisions based on their impact on cash flow

and profit.
68) What is gross profit?
A) revenue plus the costs of creating and delivering products for sale (not including
overhead)
B) revenue divided by the costs of creating and delivering products for sale (not
including overhead)
C) revenue minus the costs of creating and delivering products for sale (not including
overhead)
D) revenue multiplied by the costs of creating and delivering products for sale (not
including overhead)
Answer: C
Diff: Moderate
Page Ref: 21
Objective: Examine how people make decisions based on their impact on cash flow
and profit.
69) You are an employee of a company. Which of the following is NOT a benefit of
understanding the company’s financial statements?
A) This understanding helps you determine the company’s financial health and judge
whether your job is secure.
B) This understanding inspires and helps you to do your job more effectively.
C) This understanding gives you an idea of how likely it is you’ll get a raise or
promotion.
D) This understanding positions you to predict which employees could be demoted
into which positions.
Answer: D
Diff: Moderate
Page Ref: 23
Objective: Examine how people make decisions based on their impact on cash flow
and profit.
70) A manager’s primary job is to

A) make sure his or her employees’ work meets certain criteria.
B) assemble the products or provide the services that the company sells.
C) respond to customers’ complaints about the company’s offerings.
D) invest some of his or her compensation in company shares.

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Answer: A
Diff: Easy
Page Ref: 25
Objective: Understand four perspectives in business: the BizHats.
71) You participate in the day-to-day work of a business. Which of the following
perspectives does this give you on the business?
A) customer
B) manager
C) employee
D) owner/investor
Answer: C
Diff: Easy
Page Ref: 25
Objective: Understand four perspectives in business: the BizHats.
72) You are purchasing a good or service from a business. Which of the following
perspectives does this give you on the business?
A) customer
B) manager
C) employee
D) owner/investor
Answer: A

Diff: Easy
Page Ref: 25
Objective: Understand four perspectives in business: the BizHats.
73) You guide employees and make sure their work meets certain criteria in a company.
Which of the following perspectives does this give you on the company?
A) customer
B) manager
C) employee
D) owner/investor
Answer: B
Diff: Easy
Page Ref: 25
Objective: Understand four perspectives in business: the BizHats.
74) You have a vested interest in the financial success of a company, though you are not
participating in its day-to-day activities. Which of the following perspectives does
this give you on the company?
A) customer
B) manager
C) employee
D) owner/investor
Answer: D
Diff: Easy
Page Ref: 25
Objective: Understand four perspectives in business: the BizHats.
75) What is another term for cost of goods sold?

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A) cost of profit
B) cost of operating income
C) cost of revenue
D) cost of interest
Answer: C
Diff: Easy
Page Ref: 14
Objective: Recognize profit and how to interpret an income statement.

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