Leach TB Chap04 Ed3

Leach TB Chap04 Ed3 - CHAPTER 4 MEASURING FINANCIAL...

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CHAPTER 4 MEASURING FINANCIAL PERFORMANCE True-False Questions T. 1. Assets are financial and physical items controlled or owned by the business. F. 2. The practice of recording economic activity when realized is known as accrual accounting. F. 3. How quickly an asset can be converted into cash is called liability. F. 4. Cash or other assets that are expected to be converted into cash in less than one year are known as current liabilities. F. 5. The reduction in value of a fixed asset over its expected life intended to reflect the usage or wearing out of the asset is called accumulated depreciation. F. 6. Amounts owed to another for purchase made on credit which come due in less than one year are known as receivables. T. 7. Long-term, non-cancelable leases whereby the owner receives payments that cover the cost of the equipment plus a return on investment in the equipment is known as a capital lease. T. 8. Operating income, or earnings before interest and taxes, reflects the firm’s profits after all operating expenses, excluding financing costs, have been deducted from net sales. T. 9. Net income, or profit, is the bottom line measure of what’s left from the firm’s net sales after operating expenses, financing costs, and taxes have been deducted. F. 10. Net cash burn occurs when the sum of cash flows from operations and investing is positive. F. 11. Net cash build occurs when the sum of cash flows from operations and investing is negative. F. 12. GAAP stands for “General American Accounting Principles.” T. 13. GAAP stands for “Generally Accepted Accounting Principles.” 24
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Chapter 4: Measuring Financial Performance T. 14. Accrual accounting is the practice of recording economic activity when recognized rather than waiting until realized. F. 15. The balance sheet equation is: Total Assets = Total Liabilities + Net Income. T. 16. During the development stage in a new venture’s life cycle, the balance sheet reflects the acquisition of initial assets and the obtaining of seed financing. T. 17. During the development stage in a new venture’s life cycle, the income statement typically shows no sales but expenses such as rent, utilities, and a subsistence salary for the entrepreneur. F. 18. During the startup stage in a new venture’s life cycle, the income statement typically shows no sales but expenses including the production and market of products or services. F. 19. Production assets (e.g., inventories and equipment to produce products and give credit to customers) usually occurs during the development stage in a new venture’s life cycle. T.
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This note was uploaded on 12/05/2009 for the course FIN Fin 595 taught by Professor Shabbir during the Spring '09 term at CSU Dominguez Hills.

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Leach TB Chap04 Ed3 - CHAPTER 4 MEASURING FINANCIAL...

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