D102 Financial Accounting - Set 5 - Part 2

Correct Answer: The market value of a stock

Par value is a nominal value assigned to shares of stock in the company's charter.

Correct Answer: Cash basis accounting

Accrual basis accounting records expenses when incurred and revenues when earned, not necessarily when cash is exchanged.

Correct Answer: Increased revenues

Negative cash flow from operations may signal that a company is not generating enough cash from its core business activities.

Correct Answer: Increased by net income and decreased by dividends

Retained earnings increase with net income and decrease when dividends are paid out.

Correct Answer: Debit payroll expense, credit cash

The payroll expense increases, creating a liability until it is paid.

Correct Answer: Gross profit margin

Operating margin measures the percentage of revenue remaining after covering operating expenses, showing profitability relative to sales.

Correct Answer: Combining tasks to improve efficiency

Segregation of duties minimizes the risk of fraud and errors by ensuring that no single individual has control over all aspects of a financial transaction.

Correct Answer: Total assets minus total liabilities

Working capital measures a company's short-term liquidity and operational efficiency.

Correct Answer: As current liabilities

Contingent liabilities are only recorded if the likelihood of payment is probable and the amount can be reasonably estimated.

Correct Answer: Increases net income

Depreciation expense reduces net income as it represents a cost of using long-term assets.

Correct Answer: It decreases

Selling merchandise on credit creates a receivable, increasing accounts receivable.

Correct Answer: A statement of performance

The balance sheet is also known as the statement of financial position, summarizing assets, liabilities, and equity.

Correct Answer: Capitalized as an asset

R&D costs are typically expensed immediately, as their future benefits are uncertain.

Correct Answer: Return on equity

Return on assets (ROA) indicates how effectively a company utilizes its assets to generate profit.

Correct Answer: Debit inventory, credit cash

Purchasing inventory on account increases inventory and creates a liability.

Correct Answer: They are reported as an asset

Dividends become a liability once declared by the board of directors until they are paid.

Correct Answer: Vertical analysis

Horizontal analysis compares financial statement items over different periods to identify trends.

Correct Answer: Enhance profitability

Internal controls help protect assets and maintain the integrity of financial information.

Correct Answer: To compare cash balances with bank statements

Bank reconciliation ensures that a company's cash records align with those reported by the bank.

Correct Answer: Monetary unit assumption

The consistency principle mandates that businesses use the same accounting methods from one period to another.