Chapter-6 - Chapter 6: Entrepreneurial Accounting and Cash...

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Chapter 6: Entrepreneurial Accounting and Cash Management MULTIPLE CHOICE 1. What is the fundamental equation of business? a. Capital – revenue = profit b. Revenue – capital = profit c. Cost – revenue = profit d. Revenue – cost = profit ANS: D The fundamental equation of business is: Revenue – cost = profit. REF: 6-1 2. Price times volume is synonymous with ____. a. Actual revenue potential b. Realistic estimate of revenue c. Unrealistic sales volume d. Fundamental equation of business ANS: B The best way to avoid overly optimistic revenue or volume predictions is for the entrepreneur to begin the venture evaluation process with a realistic estimate of revenue (price times volume) and only then attempt to discover how to deliver the venture’s offerings in a cost-effective manner. REF: 6-1 3. The primary way that entrepreneurs estimate and control the costs associated with their venture is through ____. a. Accounting b. Sales c. Auditing d. Financing ANS: A The primary way that entrepreneurs estimate and control the costs associated with their venture is through accounting. REF: 6-1 4. “The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.” This is the definition of ____. a. Management b. Reporting c. Research d. Accounting ANS: D The American Accounting Association defines accounting as “the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.”
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REF: 6-2 5. Whenever the status or ownership of a thing of value changes, ____ occurs. a. An arbitrage opportunity b. A crisis c. A financial transaction d. Profit ANS: C A financial transaction occurs whenever the status or ownership of a thing of value changes. REF: 6-2 6. What is the full form of GAAP? a. Groups of accountants and profit-makers b. Generally accepted accounting principles c. General accounting and practicing d. Group accounting and accounts practicing ANS: B Accounting practitioners adhere to what are known as generally accepted accounting principles, or GAAP. REF: 6-2 7. The Sarbanes-Oxley Act was enacted in the wake of ____. a. The economic crisis after the 9/11 incident b. The poor performance of the world’s leading companies based in the United States c. Accounting scandals by major corporations d. The great depression ANS: C In the wake of accounting scandals by major corporations such as Enron, Tyco, and WorldCom, the U.S. government has enacted the Sarbanes-Oxley Act to prevent recurrence of the misdeeds of these firms. REF: 6-2 8. Financial accounting is intended primarily for use by ____. a.
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Chapter-6 - Chapter 6: Entrepreneurial Accounting and Cash...

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