Sections

CHAPTER ONE
1- Finance is the art and science of managing money. (True)
2-Financial Management deals with procurement of funds and their Effective
utilization in the business. (True)
3- The balance sheet is financial document showing a company’s income /
revenues and expenses over a given period (like one fiscal year).
(False) (the income statement)
4- Expenses/costs mean what is charged to customers for good or service.
(False) (revenues/sales)
5- Expenses/costs mean what the company pays in order to generate the sales.
(True)
6- The income statement is a snapshot of a business’ financial condition at a
specific moment in time, usually at the close of an accounting period.
(False) (A balance sheet)
7- A balance sheet comprises assets, liabilities, and owners’ or stockholders’
equity. (True)
8- Assets are the debts of the company. (False) (liabilities)
9- An accounting information system (AIS) is a system designed to transform
financial and other data into information. (True)
10- The daily report is the most important output of the accounting system.
(False) (the annual report)
11- The income statement comprises assets, liabilities, and owners’ or
stockholders’ equity. (False) (A balance sheet)
12- The Cash Flow Statement provides information about the cash receipts
and cash payments of a business entity during the accounting period. (True)
13- Any transactions that enter into the determination of net income are
classified as operating activities. (True)
14- Assets = Liabilities - Owners’ Equity. (False) (+)
15- Liabilities are the resources that the firm controls. (False) (Assets)
16- The income statement also known as the Earnings Statement or Statement
of Operations. (True)
17- The Audit report is a report issued by an independent (internal) Auditor.

(False) (external)
18- Accounting is a system by which we record & interpret the results / status
of a business into words by using an agreed upon methodologies.
(False) (numbers)
19- Accrual basis records revenues when cash is received & expenses when the

cash is paid. (False) (Cash basis)

20- Management & employees considered as external users. (False) (Internal)
21- Matching is that all expenses & revenues must be recognized during same
period. (True)
22-Major information about the businesses must be unknown.
(False) (disclosed in a clear & understandable way)
23- Any transactions involved in the acquisitions or disposition of non-current
assets are considered financing activities. (False) (Investing activities)
24- Corporate finance functions are:
A. Capital raising B. Capital budgeting C. Deciding capital structure
D. Both A&B
25- Investment decisions are:
A. What is the optimal firm size B. What specific assets should be acquired
C. What assets should be reduced or eliminated D. All of the above
26- A system designed to transform financial and other data into information.
A. Management system B. Financial system C. Closed system
D. Accounting information system
27- From External users of financial statements:
A. Shareholders B. Customers C. Employees D. Both A&B
28- Financial document showing a company’s income, revenues & expenses
over a given period is:
A. Income statement B. Earnings statement C. Statement of operations
D. All of the above
18- What are the Corporate Finance Functions:
 Capital-Raising (Financing)
 Capital Budgeting (Investment)
 Financial Management
 Risk Management
 Corporate Governance

19- What are the main tasks of Financial Management:

 Forecasting Financial Requirements
 Deciding Capital Structure
 Selecting a Source of Finance
 Selecting a Pattern of Investment
 Proper Cash Management
 Implementing Financial Controls
 The use of various control techniques
 Proper use of Surpluses

20- What are three basic issues addressed by Finance Function?

 What long-term investments should the firm under undertake? (Capital
budgeting decision)
 How should the firm raise money to fund these investments? (Capital
structure decision)
 How to manage cash flows arising from day-to-day operations? (Working
capital decision)

21- What is an Annual Report

 It’s basic purpose is to let the shareholders know how the company is
doing.
 It consists of the following:
1) Management Report.
2) The Balance Sheet.
3) The Income Statement.
4) The Statement of Retained earnings.
5) The Statement of Cash Flows.
6) Auditor’s Report.
7) Footnotes.
22- What are the classification of Cash Flows:
The Statement of Cash Flows must include the following three sections:
-Cash Flows from Operating Activities
-Cash Flows from Investing Activities
-Cash Flows from Financing Activities