Homework Lance
Accounting for Managers Practice Exam
1. What is the definition of accounting?
Answer: Accounting is the process of recording, classifying, and summarizing financial transactions to provide useful financial information for decision-making.
2. What is the purpose of financial accounting?
Answer: The purpose of financial accounting is to provide external users (investors, creditors, regulators) with accurate financial statements that reflect the financial performance and position of a business.
3. What are the main financial statements?
Answer: The main financial statements are the Income Statement, the Balance Sheet, the Statement of Cash Flows, and the Statement of Changes in Equity.
4. What is the difference between financial accounting and managerial accounting?
Answer: Financial accounting focuses on providing financial information to external users, while managerial accounting is concerned with providing internal management with the necessary information for decision-making.
5. What is a balance sheet?
Answer: A balance sheet is a financial statement that presents a company’s financial position at a specific point in time, showing assets, liabilities, and shareholders’ equity.
6. What is an income statement?
Answer: An income statement summarizes a company’s revenues and expenses over a period of time to determine the net income or loss.
7. What is the statement of cash flows?
Answer: The statement of cash flows reports the cash inflows and outflows from operating, investing, and financing activities over a period of time.
8. What are current assets?
Answer: Current assets are assets that are expected to be converted into cash or used up within one year, such as cash, accounts receivable, and inventory.
9. What are current liabilities?
Answer: Current liabilities are obligations that a company must settle within one year, such as accounts payable and short-term debt.
10. What is working capital?
Answer: Working capital is the difference between current assets and current liabilities. It represents the company’s ability to cover its short-term obligations.
11. What is the formula for calculating the debt-to-equity ratio?
Answer: Debt-to-equity ratio = Total Liabilities / Shareholders’ Equity.
12. What is the role of an accountant in a business?
Answer: An accountant’s role involves recording financial transactions, preparing financial statements, ensuring regulatory compliance, and advising on financial management.
13. What is the accounting equation?
Answer: The accounting equation is: Assets = Liabilities + Shareholders’ Equity. It represents the relationship between a company’s assets, liabilities, and equity.
14. What is accrual accounting?
Answer: Accrual accounting recognizes revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.
15. What is cash basis accounting?
Answer: Cash basis accounting records revenues and expenses when cash is actually received or paid.
16. What are prepaid expenses?
Answer: Prepaid expenses are payments made in advance for goods or services to be received in the future, such as insurance or rent.
17. What are accounts receivable?
Answer: Accounts receivable represents money owed to a company by customers for goods or services delivered but not yet paid for.
18. What is a trial balance?
Answer: A trial balance is a statement that lists the balances of all general ledger accounts to ensure that total debits equal total credits.
19. What is depreciation?
Answer: Depreciation is the allocation of the cost of a tangible asset over its useful life.
20. What are fixed assets?
Answer: Fixed assets are long-term assets, such as property, plant, and equipment, that are used in the operations of a business and are not intended for resale.
21. What is the difference between direct and indirect costs?
Answer: Direct costs can be traced directly to a specific product or service, such as raw materials, while indirect costs are not directly traceable, such as administrative expenses.
22. What is cost-volume-profit (CVP) analysis?
Answer: CVP analysis is a method used to understand the relationship between cost, volume, and profit, helping managers make decisions about pricing, production, and product mix.
23. What is break-even analysis?
Answer: Break-even analysis determines the level of sales at which total revenues equal total costs, resulting in neither profit nor loss.
24. What is a general ledger?
Answer: A general ledger is a complete record of all financial transactions over the life of a company, organized by accounts.
25. What is a journal entry?
Answer: A journal entry is the record of a financial transaction in an accounting system, showing the accounts affected and the amounts.
26. What is the difference between a debit and a credit?
Answer: A debit increases assets and expenses, while a credit increases liabilities, equity, and revenue.
27. What is the matching principle?
Answer: The matching principle states that expenses should be recorded in the same period as the revenues they help generate.
28. What is the revenue recognition principle?
Answer: The revenue recognition principle states that revenue should be recognized when it is earned, regardless of when payment is received.
29. What is the purpose of budgeting in managerial accounting?
Answer: Budgeting helps managers plan and control financial resources, set targets, and measure performance against goals.
30. What are variable costs?
Answer: Variable costs are costs that change in direct proportion to the level of production or sales, such as raw materials and direct labor.
31. What are fixed costs?
Answer: Fixed costs are costs that remain constant regardless of the level of production or sales, such as rent and salaries.
32. What is activity-based costing?
Answer: Activity-based costing is a method of allocating overhead costs based on the activities that drive costs, rather than using a single allocation base like labor hours.
33. What is job-order costing?
Answer: Job-order costing is a method used to assign costs to specific jobs or batches of products, typically used in manufacturing and construction.
34. What is process costing?
Answer: Process costing is used in industries where production is continuous, and costs are averaged over units produced, such as in chemicals or food manufacturing.
35. What is a variance analysis?
Answer: Variance analysis compares budgeted costs and revenues to actual results, helping managers understand performance differences and take corrective actions.
36. What is a contribution margin?
Answer: The contribution margin is the difference between sales revenue and variable costs. It represents the amount available to cover fixed costs and contribute to profit.
37. What is a cash budget?
Answer: A cash budget is a forecast of cash inflows and outflows over a specific period, helping ensure that a business has enough cash to meet its obligations.
38. What is the purpose of internal controls in accounting?
Answer: Internal controls are procedures designed to ensure the accuracy and reliability of financial reporting, safeguard assets, and prevent fraud.
39. What is an audit?
Answer: An audit is an independent examination of a company’s financial statements to ensure they are accurate and comply with accounting standards.
40. What is the difference between a financial accountant and a management accountant?
Answer: A financial accountant prepares financial statements for external users, while a management accountant provides internal management with information for decision-making.
41. What is a financial ratio?
Answer: A financial ratio is a relationship between two financial variables that helps assess a company’s performance, liquidity, profitability, or solvency.
42. What is return on equity (ROE)?
Answer: Return on equity (ROE) is a measure of profitability, calculated as net income divided by shareholders’ equity.
43. What is return on assets (ROA)?
Answer: Return on assets (ROA) is a measure of profitability, calculated as net income divided by total assets.
44. What is gross profit margin?
Answer: The gross profit margin is calculated by dividing gross profit by revenue, indicating the percentage of revenue that exceeds the cost of goods sold.
45. What is net profit margin?
Answer: The net profit margin is calculated by dividing net income by total revenue, showing the percentage of revenue that results in profit after all expenses.
46. What is a cash flow statement used for?
Answer: The cash flow statement shows how changes in balance sheet accounts and income affect cash and cash equivalents, providing insights into a company’s liquidity.
47. What is the importance of working capital management?
Answer: Effective working capital management ensures a business can meet its short-term liabilities and maintain smooth operations without overextending its financial resources.
48. What is a provision for bad debts?
Answer: A provision for bad debts is an estimate of the amount of accounts receivable that may not be collected,
49. What is goodwill?
Answer: Goodwill is an intangible asset representing the excess purchase price paid for a company above the fair value of its identifiable assets and liabilities.
50. What is a capital lease?
Answer: A capital lease is a lease agreement in which the lessee assumes ownership risks and benefits, typically resulting in the asset being recorded on the balance sheet.
51. What is an operating lease?
Answer: An operating lease is a lease agreement where the lessor retains ownership of the asset, and the lease expense is recorded as an operating cost.
52. What is a contingent liability?
Answer: A contingent liability is a potential obligation that may arise depending on the outcome of a future event, such as a lawsuit.
53. What is the time value of money (TVM)?
Answer: The time value of money refers to the concept that money available today is worth more than the same amount in the future due to its potential earning capacity.
54. What is the difference between simple and compound interest?
Answer: Simple interest is calculated only on the initial principal, while compound interest is calculated on both the initial principal and any accumulated interest.
55. What is a discount rate?
Answer: The discount rate is the interest rate used to discount future cash flows to their present value, reflecting the opportunity cost of capital.
56. What is a financial forecast?
Answer: A financial forecast is an estimate of a company’s future financial performance based on historical data, trends, and assumptions.
57. What is the cost of capital?
Answer: The cost of capital is the return rate required by investors for providing capital to a business, reflecting the risk of investment.
58. What is financial leverage?
Answer: Financial leverage refers to the use of debt to finance a company’s operations, aiming to increase the return on equity.
59. What is the difference between a stock dividend and a stock split?
Answer: A stock dividend is a dividend paid in additional shares rather than cash, while a stock split involves increasing the number of outstanding shares, reducing the share price proportionally.
60. What is a partnership in accounting?
Answer: A partnership is a business structure in which two or more individuals share ownership, responsibilities, and profits.
61. What is a corporation in accounting?
Answer: A corporation is a legal entity separate from its owners, offering limited liability protection and subject to corporate tax rates.
62. What is an operating budget?
Answer: An operating budget is a financial plan that outlines expected income and expenses for the day-to-day operations of a business.
63. What is a capital budget?
Answer: A capital budget is a financial plan used to evaluate and allocate funds for long-term investments in assets such as equipment or facilities.
64. What is an expense report?
Answer: An expense report is a document used by employees to track and report business-related expenses for reimbursement or accounting purposes.
65. What is a solvency ratio?
Answer: A solvency ratio measures a company’s ability to meet its long-term debt obligations. It is calculated as total assets divided by total liabilities.
66. What is a profitability ratio?
Answer: A profitability ratio measures a company’s ability to generate profit relative to its revenue, assets, or equity.
67. What is an accounts payable turnover ratio?
Answer: The accounts payable turnover ratio measures how quickly a company pays off its suppliers, calculated as total purchases divided by average accounts payable.
68. What is an inventory turnover ratio?
Answer: The inventory turnover ratio measures how often a company sells and replaces its inventory, calculated as the cost of goods sold divided by average inventory.
69. What is a return on investment (ROI)?
Answer: ROI measures the profitability of an investment relative to its cost, calculated as net profit divided by the cost of investment.
70. What is the purpose of managerial accounting reports?
Answer: Managerial accounting reports provide internal managers with data to make informed decisions regarding cost control, budgeting, performance evaluation, and resource allocation.
71. What is a financial risk?
Answer: Financial risk refers to the possibility that a company may not be able to meet its financial obligations, leading to potential losses or bankruptcy.
72. What is the purpose of internal financial controls?
Answer: Internal financial controls ensure the accuracy of financial reporting, prevent fraud, and safeguard company assets.
73. What is the difference between a merger and an acquisition?
Answer: A merger involves two companies combining to form a new entity, while an acquisition involves one company purchasing another.
74. What is goodwill impairment?
Answer: Goodwill impairment occurs when the carrying value of goodwill exceeds its fair value, resulting in a write-down.
75. What is financial statement analysis?
Answer: Financial statement analysis involves evaluating a company’s financial statements to assess its performance, profitability, and financial health.
76. What is a debt covenant?
Answer: A debt covenant is a clause in a loan agreement that imposes certain restrictions or requirements on the borrower to protect the lender’s interests.
77. What is a letter of credit?
Answer: A letter of credit is a financial document issued by a bank guaranteeing payment to a seller on behalf of the buyer, contingent on meeting certain conditions.
78. What is a bank reconciliation?
Answer: A bank reconciliation is the process of comparing a company’s cash records with its bank statements to ensure accuracy and identify discrepancies.
79. What is a preferred stock?
Answer: Preferred stock is a class of stock that has priority over common stock in the payment of dividends and in the event of liquidation.
80. What is a treasury stock?
Answer: Treasury stock refers to shares that a company has repurchased from shareholders and holds in its own treasury, reducing outstanding shares.
81. What is a capital gains tax?
Answer: Capital gains tax is a tax on the profit made from the sale of an asset, such as stocks, bonds, or real estate.
82. What is the purpose of financial planning?
Answer: Financial planning helps a company set financial goals, allocate resources effectively, and anticipate potential risks and opportunities.
83. What is a dividend payout ratio?
Answer: The dividend payout ratio is the percentage of earnings paid to shareholders in the form of dividends, calculated as dividends divided by net income.
84. What is a financial plan?
Answer: A financial plan is a comprehensive analysis and strategy for managing a company’s finances, including budgeting, forecasting, and investment planning.
85. What is the purpose of cash flow management?
Answer: Cash flow management ensures a business can meet its short-term obligations, prevent liquidity issues, and maintain financial stability.
86. What is the purpose of the statement of changes in equity?
Answer: The statement of changes in equity details the movement in equity over a period, including investments, dividends, and retained earnings.
87. What is net working capital?
Answer: Net working capital is calculated as current assets minus current liabilities and represents the liquidity available for daily operations.
88. What is an auditor’s report?
Answer: An auditor’s report is an official opinion provided by an auditor regarding the fairness and accuracy of a company’s financial statements.
89. What is an expense ratio?
Answer: The expense ratio is the proportion of a company’s revenue spent on operating expenses, calculated as total expenses divided by total revenue.
90. What is an economic order quantity (EOQ)?
Answer: The economic order quantity is the optimal order quantity that minimizes the total cost of inventory, including ordering and holding costs.
91. What is the difference between operating income and net income?
Answer: Operating income is the profit from regular business operations, while net income includes all revenues, expenses, gains, and losses.
92. What is the difference between tangible and intangible assets?
Answer: Tangible assets are physical assets like buildings and machinery, while intangible assets are non-physical assets like patents and trademarks.
93. What is capital budgeting?
Answer: Capital budgeting is the process of planning and evaluating long-term investments in projects, assets, or new products.
94. What is a budget variance?
Answer: A budget variance is the difference between the budgeted amount and the actual amount spent or earned, indicating performance discrepancies.
95. What is a time period assumption?
Answer: The time period assumption assumes that financial performance can be divided into distinct periods, such as quarters or years, for reporting purposes.
96. What is an operating cycle?
Answer: The operating cycle is the time taken for a company to purchase inventory, sell it, and collect cash from customers.
97. What is capital structure?
Answer: Capital structure refers to the mix of debt and equity financing used by a company to fund its operations and growth.
98. What is leverage?
Answer: Leverage refers to the use of borrowed funds (debt) to amplify the potential return on investment.
99. What is return on equity?
Answer: Return on equity is a measure of a company’s profitability relative to shareholders’ equity, calculated as net income divided by equity.
100. What is an accounting period?
Answer: An accounting period is the span of time for which financial statements are prepared, such as a month, quarter, or year.
101. What is cost allocation in managerial accounting?
Answer: Cost allocation is the process of assigning indirect costs (overhead) to different departments, products, or services based on a reasonable method, such as labor hours or machine usage.
102. What is a relevant cost?
Answer: Relevant costs are costs that are directly impacted by a decision and should be considered when making choices, such as incremental costs or future costs that differ between alternatives.
103. What is the difference between a fixed and a variable cost?
Answer: Fixed costs do not change with the level of production (e.g., rent), while variable costs change directly with the level of production (e.g., raw materials).
104. What is a sunk cost?
Answer: A sunk cost is a past cost that cannot be recovered and should not influence future decisions. For example, money spent on a machine that is no longer usable.
105. What is the purpose of cost behavior analysis?
Answer: Cost behavior analysis helps managers understand how costs change with different levels of business activity and is crucial for budgeting, forecasting, and pricing decisions.
106. What is a fixed cost per unit?
Answer: A fixed cost per unit is the total fixed cost divided by the number of units produced. Although the fixed cost stays the same in total, the fixed cost per unit decreases as production increases.
107. What is an incremental cost?
Answer: Incremental cost is the additional cost incurred when producing one more unit of a product or service, often used in decisions such as pricing and production.
108. What is target costing?
Answer: Target costing is a pricing strategy in which a company determines the desired profit margin and target cost based on competitive market prices and customer expectations.
109. What is contribution margin ratio?
Answer: The contribution margin ratio is calculated as the contribution margin (sales revenue minus variable costs) divided by sales revenue, showing the percentage of revenue available to cover fixed costs.
110. What is a standard cost?
Answer: A standard cost is the predetermined cost of producing a product or service, based on historical data, industry benchmarks, and expected performance.
111. What is variance analysis in managerial accounting?
Answer: Variance analysis compares actual performance with budgeted performance, helping to identify discrepancies and their causes, and providing insights for corrective actions.
112. What is a favorable variance?
Answer: A favorable variance occurs when actual revenues are higher or actual costs are lower than the budgeted amounts, resulting in better-than-expected performance.
113. What is an unfavorable variance?
Answer: An unfavorable variance occurs when actual revenues are lower or actual costs are higher than the budgeted amounts, indicating poorer-than-expected performance.
114. What is break-even point in units?
Answer: The break-even point in units is the number of units that must be sold for a company to cover its fixed and variable costs, calculated by dividing total fixed costs by the contribution margin per unit.
115. What is a master budget?
Answer: A master budget is a comprehensive financial plan that includes all individual budgets within an organization, such as the sales, production, cash, and capital budgets.
116. What is a flexible budget?
Answer: A flexible budget adjusts budgeted amounts based on the actual level of activity or volume, allowing for more accurate performance evaluation.
117. What is a budgeted income statement?
Answer: A budgeted income statement is a forecast of a company’s expected revenues, expenses, and profits over a specific period, based on budget assumptions.
118. What is a direct materials cost?
Answer: Direct materials cost refers to the cost of raw materials that are directly used in the production of goods or services.
119. What is direct labor cost?
Answer: Direct labor cost is the cost of wages paid to workers directly involved in producing goods or providing services.
120. What are overhead costs?
Answer: Overhead costs are indirect costs incurred to support production, such as rent, utilities, administrative salaries, and depreciation, which cannot be directly traced to specific products or services.
121. What is a cash budget used for?
Answer: A cash budget is used to forecast cash inflows and outflows over a specified period, helping companies manage liquidity and ensure they have enough cash to meet obligations.
122. What is capital budgeting?
Answer: Capital budgeting is the process of planning and evaluating long-term investments in fixed assets or projects to determine their potential for profitability.
123. What is a payback period?
Answer: The payback period is the time it takes for an investment to recover its initial cost from its expected future cash inflows.
124. What is net present value (NPV)?
Answer: Net present value (NPV) is the sum of discounted cash inflows and outflows over time. It is used in capital budgeting to determine the profitability of an investment.
125. What is internal rate of return (IRR)?
Answer: The internal rate of return (IRR) is the discount rate at which the net present value (NPV) of an investment’s cash flows equals zero, representing the expected return on an investment.
126. What is a return on investment (ROI)?
Answer: Return on investment (ROI) is a performance measure used to evaluate the profitability of an investment, calculated as net profit divided by the investment cost.
127. What is an accounting period?
Answer: An accounting period is a specific timeframe for which financial statements are prepared, such as a month, quarter, or year.
128. What is working capital management?
Answer: Working capital management involves managing a company’s short-term assets and liabilities to ensure it has enough liquidity to cover its operational expenses.
129. What is cost-plus pricing?
Answer: Cost-plus pricing is a pricing strategy where a company sets the price of a product by adding a markup to the cost of production.
130. What is transfer pricing?
Answer: Transfer pricing refers to the prices charged for goods and services exchanged between divisions of the same company, often used for tax or profit allocation purposes.
131. What is a cost center?
Answer: A cost center is a department or function within an organization that incurs costs but does not directly generate revenue, such as the HR or IT department.
132. What is a profit center?
Answer: A profit center is a division or unit within an organization that is responsible for generating both revenue and profit, such as a sales department or a product line.
133. What is a segment margin?
Answer: A segment margin is the contribution margin of a business segment after subtracting its traceable fixed costs, used to assess the profitability of different parts of a business.
134. What is a responsibility accounting system?
Answer: A responsibility accounting system assigns responsibility for specific financial performance to individual managers or departments, helping hold them accountable for their results.
135. What is a sales budget?
Answer: A sales budget is a financial plan that outlines expected sales revenue for a specific period, based on historical data, market conditions, and sales forecasts.
136. What is an expense budget?
Answer: An expense budget is a financial plan that outlines expected costs for a specific period, detailing expenses by category such as salaries, utilities, and supplies.
137. What is a production budget?
Answer: A production budget outlines the number of units that need to be produced to meet sales goals and inventory requirements.
138. What is a cash conversion cycle?
Answer: The cash conversion cycle is the time it takes for a company to convert its inventory and receivables into cash, reflecting its efficiency in managing working capital.
139. What is an aging of accounts receivable?
Answer: Aging of accounts receivable is a method used to categorize outstanding customer invoices by the length of time they have been unpaid, helping businesses manage collections.
140. What is an overhead rate?
Answer: An overhead rate is a rate used to allocate overhead costs to products or services, often calculated as total overhead costs divided by an appropriate allocation base (such as labor hours).
141. What is a process cost system?
Answer: A process cost system is used in industries where products are mass-produced, and costs are averaged over large quantities of identical units produced.
142. What is a job-order cost system?
Answer: A job-order cost system assigns costs to specific jobs or orders, typically used in industries where products are customized or produced in small batches.
143. What is a contribution margin?
Answer: The contribution margin is the amount by which sales revenue exceeds variable costs. It is used to cover fixed costs and contribute to profits.
144. What is a breakeven chart?
Answer: A breakeven chart visually represents the relationship between total costs, sales revenue, and the breakeven point, helping managers understand the level of sales needed to cover costs.
145. What is absorption costing?
Answer: Absorption costing is a costing method that includes both variable and fixed manufacturing costs in the cost of a product.
146. What is variable costing?
Answer: Variable costing is a costing method that includes only variable manufacturing costs in the cost of a product, treating fixed manufacturing costs as period expenses.
147. What is the difference between financial accounting and managerial accounting?
Answer: Financial accounting focuses on reporting financial information to external stakeholders, while managerial accounting provides internal management with information for decision-making and control.
148. What is job-order costing used for?
Answer: Job-order costing is used when products or services are customized, allowing businesses to track the costs associated with individual jobs or projects.
149. What is the role of an accountant in a business?
Answer: An accountant in a business is responsible for managing financial records, preparing reports, ensuring regulatory compliance, and providing financial analysis to support decision-making.
150. What is the role of management accounting?
Answer: Management accounting provides financial information and analysis to managers to help them make informed decisions related to budgeting, performance evaluation, cost control, and strategic planning.
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