True or False
All income that a business receives over a period of time is called profit.
False, The amount of revenue left after expenses have been paid is profit.
A business will make a profit if
a. revenue equals expenses.
b. revenue is greater than expenses.
c. expenses decrease and revenue increases.
d. expenses are greater than revenue.
b
If revenue is greater than expenses, the business will make a profit.
For businesses that have operated for several years, the main source of budget information is
a. the business’s financial records.
b. the Internet.
c. the Small Business Administration.
d. business magazines and newspapers.
a
The main source of that information is the past financial records of the business.
Which of the following is NOT a common way businesses pay employees?
a. yearly
b. monthly
c. bi-weekly
d. weekly
a
Most businesses pay employees on a weekly, bi-weekly, or monthly basis.
This shows how much profit is being made by each dollar of sales for the period being analyzed.
a. current ratio
b. debt to equity ratio
c. return on equity ratio
d. net profit margin
d
The net income ratio shows how much profit is being made by each dollar of sales for the period being analyzed.
Sales, expenses, and profits or losses for a specific period are reported in a company’s income statement.
True
To report the revenue, expenses, and net income or loss from operations for a specific period, a business prepares an income statement.
When a business expands,
a. profits will increase.
b. employees will likely be fired
c. marketing activities can be put on hold temporarily.
d. new factories and equipment may be needed.
d
When business expansion occurs, new factories and equipment may be needed to produce the products.
Which of the following generally is NOT a goal of a business budget?
a. to determine the sources and amounts of income
b. to predict the types and amounts of expenses for the business
c. to convince employees to take a big pay cut so the business can avoid bankruptcy
d. to determine how income will be distributed to cover expenses
c
A business budget has two main purposes: 1. Anticipate sources and amounts of income for a business; 2. Predict types and amounts of expenses for a specific business activity or the entire business.
Which of the following would NOT be considered a benefit?
a. unpaid vacation
b. health insurance
c. paid vacation
d. a salary
d
As a part of the compensation system, most businesses provide employees a range of benefits. Benefits include such things as insurance, paid vacation, sick leave and personal time off, retirement plans, and education assistance.
What does the Debt-to-Equity ratio measure?
Risk, how much debt is the company using.
Assets – Liabilities = Owner’s Equity
True
Assets are what a company owns. Liabilities are what a company owes. Owner’s equity (the difference between assets and liabilities) is the value of the owner’s investment in the business.
Which of these is the result when a business’s revenue is greater than its expenses?
a. assets
b. owner’s equity
c. liabilities
d. net income
d
The business has a net income when revenue is greater than expenses.
Which type of budget is an estimate of the actual money received and paid out for a specific period?
a. an accounting budget
b. a final budget
c. a cash budget
d. a balanced budget
c
A cash budget is an estimate of the actual money received and paid out for a specific period.
Most businesses include a(n) ____________________ with the employee’s paycheck; this document usually includes information for the current pay period as well as the cumulative amounts for the year.
a. earnings report or pay stub
b. financial report
c. payroll record.
d. income statement.
a
Most businesses print an earnings report for the employee. This record provides information for the current pay period as well as the cumulative amounts for the year. The earnings report, called a pay stub, may be attached to the paycheck.
Financial performance ____________________ are comparisons of a company’s financial elements that indicate how well the business is performing.
ratios
Employees in most businesses receive their pay with a printed paycheck.
False
Most businesses use direct deposit to pay employees.
An income statement usually reports
a. assets and liabilities.
b. cash on hand and inventory.
c. revenue and expenses.
d. owner's equity.
c
A balance sheet reports assets, liabilities, and owner’s equity as of a specific date. An income statement reports revenues, expenses, and net profit or loss for a specified time period.
The first step of the budgeting process is to
a. prepare a list of each type of income and expense that will be part of the budget.
b. calculate each type of income, expense, and the amount of net income or loss.
c. explain the budget to people who need to make financial decisions.
d. gather accurate financial information.
a
The budgeting process involves four main steps. The first is to prepare a list of each type of income and expense.
With ____________________ deposit, an employer transfers net pay electronically into an employee’s bank account.
direct
What question does the Return on Equity ratio ask?
How well is investor money used?
The company’s liabilities divided by the owners’ equity is the current ratio.
False
The current ratio compares the total current assets with the total current liabilities.
____________________ assets include cash and those items that can be readily converted into cash
current
A(n) ____________________ budget plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable
start-up
What is a payroll record? What information is included on a payroll record? (Name 3 items to receive the points)
A payroll record is the form used to track each employee’s pay history. Each one holds the employee’s name, Social Security number, address, and other needed personal information. It also includes individual tax information and a record of benefits such as vacation and sick days available and used. The employee’s current and year-to-date earnings, deductions, gross pay, and net pay are also maintained on the payroll record.
How is the return on equity ratio calculated? What does it show and to what should it be compared?
Answer 2/3 questions for full points
The return on equity ratio is calculated by comparing the net profit of a business to the amount of owners’ equity. It shows the rate of return the owners are getting on the money they have invested in the company. Owners should compare it to the return they could receive if they used their money in other ways, such as savings or investing in other companies.