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Timothy S. Hatten,
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Hatten, Small Business Management 7e
SAGE Publishing, 2020
Test Bank
CHAPTER 8: ACCOUNTING RECORDS AND FINANCIAL STATEMENTS
Multiple Choice
1. The current ratio ______.
a. shows the current level of profits
b. shows the current ratio of sales to profits
c. shows the ratio of debt to profits
d. shows the firm’s ability to cover its current liabilities with its current assets
Ans: D
KEY: Learning Objective: 8.3: Explain the 11 ratios used to analyze financial
statements.
REF: Cognitive Domain: Knowledge
Answer Location: Concept Module 8.3: Analyzing Financial Statements
Difficulty Level: Easy
TOP: AACSB Standard: Information technology
2. The system within a business for converting raw data from source documents (like
invoices, sales receipts, bills, and checks) into information that will help a manager
make business decisions is known as a/an ______.
a. computer system
b. accounting system
c. record system
d. data system
Ans: B
KEY: Learning Objective: 8.1: Discuss the importance and uses of financial records in a
small business.
Answer Location: Concept Module 8.1: Small Business Accounting
TOP: AACSB Standard: Analytical thinking
3. Most of the mismanagement decisions that cause small businesses to fail are related
to ______.
a. inventory
b. personnel
c. finance
d. sales
Ans: C
small business.
4. At Wilson’s Wash and Go, business managers ensure that all financial transactions
are recorded in chronological order. These transactions are then classified by type. This
example specifically involves which two areas of the accounting process?
a. journals and ratios
b. ledgers and financial statements
c. ratios and financial statements
d. journals and ledgers
Ans: D
KEY: Learning Objective: 8.2: Itemize the accounting records needed for a small
business.
Answer Location: Concept Module 8.2: Small Business Accounting Basics
TOP: AACSB Standard: Reflective thinking
5. ______ refers to what the business owes.

a. Debit
b. Asset
c. Owner’s equity
d. Liability
Ans: D
business.
6. ______ refers to what the business owner has invested in the business.
a. Debit
b. Asset
c. Equity
d. Liability
Ans: C
business.
7. An accounting system in which every business transaction is recorded in an asset

account, a liability account, or an owner’s equity account in order for the system to
balance is known as which of the following?
a. double-entry accounting
b. open-book accounting
c. managerial accounting
d. cost accounting
Ans: A
business.
8. In double-entry accounting systems, debits must always equal ______.

a. assets
b. liabilities
c. credits
d. owner’s equity
Ans: C
business.
9. Double-entry accounting systems revolve around all but which of the following types
of accounts?
a. asset
b. liabilities
c. owner’s equity
d. expense
Ans: D
business.
10. Single-entry accounting systems record the flow of income and expenses in a
running log and allow the small business owner to produce ______.
a. an income statement
b. a balance sheet
c. a statement of cash flows
d. monthly statements
Ans: D
business.
11. In the accounting equation, Assets = Liabilities + ______.

a. Revenue
b. Expenses
c. Equity
d. Cash flow
Ans: C
business.
12. In the accounting equation, Cash Flow = Receipts − ______.

a. Revenue
b. Expenses
c. Equity
d. Disbursements
Ans: D
business.
13. “Profit = Revenue − Expenses” represents the activity described in the ______.
a. income statement
b. balance sheet
c. cash flow statement
d. quick ratio
Ans: A
business.
14. At Fran’s Floral, Fran records transactions when cash is actually received and when
expenses are actually paid. This is referred to as the ______ method of accounting.
a. accrual-basis
b. cash-basis
c. liquidity-basis
d. profit-basis
Ans: B
business.
15. A summary book for recording all transactions and account balances is referred to
as a/an ______.
a. general ledger
b. balance sheet
c. journal
d. income statement
Ans: A
business.
16. A method of accounting in which income or expenses are recorded at the time they
are incurred, rather than when they are paid, is called ______.
a. accrual basis
b. cash basis
c. time basis
d. expense basis
Ans: A
business.
17. A small business owner should not use the cash basis if ______.
a. the business extends credit
b. the business has high debt
c. the business has low sales
d. the business has increasing expenses

Ans: A
business.
18. The accounting standards that have been established so all businesses produce
comparable financial statements are known as which of the following?
a. GAAP
b. FASB
c. GANTT
d. GAT
Ans: A
business.
19. The financial record that summarizes the income and expenses of the business over
time is the ______.
a. income statement
b. balance sheet
c. statement of retained earnings
d. statement of cash flows
Ans: A
business.
20. A financial statement that includes a percentage breakdown of each item is known
as which of the following?
a. income statement
b. common-size financial statement
c. statement of retained earnings
Ans: B
business.

21. A financial statement that shows a firm’s assets, liabilities, and owner’s equity is
called a/an ______.
a. income statement
c. balance sheet
Ans: C
business.
22. A financial statement that shows the cash inflows and outflows of a business is
called a/an ______.
a. income statement
c. balance sheet
Ans: D
business.
23. Financial statements that project what a firm’s financial condition will be in the future
are known as ______.
a. pro forma financial statements
b. common-size financial statements
c. balance sheets
d. statements of cash flows
Ans: A
business.
24. ______ are either full or partial estimates, since projections are being made as
opposed to recording actual transactions.
a. Income statements
b. Common-size financial statements
c. Pro forma financial statements
d. Statements of cash flows
Ans: C
business.
25. When more cash is going out of a business than is coming in, this is referred to as
______.
a. cash turnover ratio
b. profit
c. negative cash flow
d. being “in-the-black”
Ans: C
KEY: Learning Objective: 8.4: Illustrate the importance of and procedures for managing
cash flow.
Answer Location: Concept Module 8.4: Managing Cash Flow
26. Elvira is considering purchasing a new truck for her distribution company. To better
evaluate such a financial risk, she makes projections about what her company’s
financial condition will be like in the future if a new truck is purchased. This is referred to
as a/an ______.
a. business cycle balance sheet
c. statement of current cash flow
d. pro forma financial statement
Ans: D
business.
27. Which of the following financial actions should be made on a weekly basis by a
small business manager?
a. check your cash balance on hand
b. note especially slow-paying accounts
c. record any money paid out
d. review federal tax requirements
Ans: B
business.
28. Which of the following financial actions should be made on a monthly basis by a
small business manager?
a. check your cash balance on hand
b. note especially slow-paying accounts
c. calculate payroll
d. review your income statement
Ans: D
business.
29. Which of the following is not a major category of financial ratios?

a. equity
b. leverage
c. activity
d. profitability
Ans: A
statements.
30. Benchmark analysis compares firms to ______.

a. industry averages
b. lagging competitors
c. industry leaders
d. their own past performance
Ans: C
statements.
31. Calculations that compare the important financial aspects of a business are called
______.
a. financial ratios
b. overview ratios
c. accounting ratios
d. analytical thinking ratios
Ans: A
statements.
32. ______ analysis involves comparing firms’ financial ratios to the industry averages.
a. Industry average
b. Benchmarking
c. Competitive average
d. Trend
Ans: A
statements.
33. Each year, managers at Super Socks compare their current financial ratios with the
numbers from the previous two years. This is referred to as what kind of analysis?
a. industry average analysis
b. benchmarking analysis
c. time continuum analysis
d. trend analysis
Ans: D
statements.

34. The ratios used to measure a firm’s ability to meet its short-term obligations to
creditors as they come due are called ______.
a. liquidity ratios
b. activity ratios
c. leverage ratios
d. profitability ratios
Ans: A
statements.
35. Which of the following ratios measures the number of times the firm can cover its
current liabilities with its current assets?
a. current ratio
b. quick ratio
c. debt ratio
d. return on assets
Ans: A
statements.
36. Harry’s Home Services has current liabilities of $450,000, current assets of
$500,000, and profits of $80,000. Which of the following is the current ratio for Harry’s
business?
a. 0.17
b. 0.9
c. 1.11
d. 16
Ans: C
statements.
37. Current ratios of 1.0 or less are considered ______.

a. to show excessive liquidity
b. low and indicative of potential financial problems
c. average
d. very positive
Ans: B
statements.
38. If Tim’s Tools & Tunes has current assets of $500, inventory of $45, current
liabilities of $425, and profit of $250, which of the following is the quick ratio for the
business?
a. 1.07
b. 1.28
c. 1.7
d. 2.18
Ans: A
statements.
39. The ratios that measure the speed with which various accounts are converted into
sales or cash and that are used to measure the efficiency of asset usage are known as
______.
a. liquidity ratios
b. activity ratios
c. leverage ratios
Ans: B
statements.
40. The ratio that measures how quickly goods are sold and replenished is called
______.
a. average collection period
b. inventory turnover
c. quick ratio
d. current ratio
Ans: B
statements.
41. Bill’s Bolo business has a cost of goods sold of $45,000, an inventory of $20,000,
and current assets of $50,000. Which of the following is the inventory turnover for the
business?
a. 0.9
b. 1.3
c. 2.25
d. 2.5
Ans: C
statements.
Difficulty Level: Medium
42. The measure of how long it takes a firm to convert a credit sale into a usable form is
known as which of the following?
a. average collection period
b. inventory turnover
c. quick ratio
d. current ratio
Ans: A
statements.
43. Sally’s Shoe Service has accounts receivables of $35,335, average sales per day of
$500,000, and a cost of goods sold of $45,000. What is her average collection period?
a. 7.0 days
b. 7.8 days
c. 14.15 days
d. 25.79 days
Ans: D
statements.
44. High average collection periods usually indicate ______.

a. sales that are increasing
b. accounts receivable that are all being collected
c. many uncollected accounts receivable
d. overly restrictive credit policies
Ans: C
statements.
45. Which of the following ratios measures how efficiently the firm is using its assets to
generate sales?
a. current ratio
b. total asset turnover ratio
c. fixed asset turnover
d. debt ratio
Ans: C
statements.
46. A low fixed asset turnover ratio often indicates that ______.
a. the firm is efficiently using its current assets
b. the firm is efficiently using its total assets
c. the firm is keeping expenses low
d. marketing efforts are ineffective
Ans: D
statements.
47. Larry’s Lab has sales of $35,750, net fixed assets of $14,500, current assets of
$12,300, and cost of goods sold of $30,000. Which of the following is the fixed asset
turnover ratio for the business?
a. 1.18 times
b. 1.19 times
c. 2.47 times
d. 2.91 times
Ans: C
statements.
48. Which of the following ratios measures how efficiently the firm uses all of its assets
to generate sales?
a. fixed asset turnover
b. total asset turnover
c. debt ratio
d. times interest earned ratio
Ans: B
statements.
49. Shelli’s Ski Super has sales of $670, net fixed assets of $210, total assets of $305,
and current assets of $25. Which of the following is the total asset turnover ratio for the
business?
a. 0.46 times
b. 2.2 times
c. 3.19 times
d. 26.8 times
Ans: B
statements.
50. Which of the following ratios measures the extent to which a firm uses debt as a
source of financing and its ability to service that debt?
a. liquidity ratios
b. activity ratios
c. leverage ratios
Ans: C
statements.
51. Which of the following ratios measures the proportion of a firm’s total assets that
have been acquired with borrowed funds?
c. debt ratio
Ans: C
statements.
52. Kim’s Kar Kare Service has total debt of $690, total assets of $1,260, interest
expense of $140, and sales of $400. Which of the following is the debt ratio for the
business?
a. 11.1 percent
b. 31.7 percent
c. 54.8 percent
d. 58 percent
Ans: C
statements.
53. Which of the following ratios shows how far operating income can decline before the
firm will have difficulties servicing its debt obligation?

c. debt ratio
Ans: D
statements.
54. Sandi’s Silver Service has operating income of $545, sales of $750, expenses of
$245, and interest expense of $198. Which of the following is the times interest earned
ratio for the business?
a. 2.22
b. 2.75
c. 4.49
d. 72.6
Ans: B
statements.
55. Which of the following ratios is widely used as an indication of management

efficiency and measures the percentage of each sales dollar that remains as profit after
all expenses have been paid.
a. times interest earned
b. net profit margin
c. return on assets
d. return on equity
Ans: B
statements.
56. Becky’s Bovine Specials has a net income of $345, operating income of $305, sales
of $678, and total assets of $245. Which of the following is the net profit margin for her
business?
a. 0.361
b. 0.450
c. 0.508
d. 0.884
Ans: C
statements.
57. Which of the following ratios shows effective management and the firm’s
effectiveness in generating profits from the available assets?
c. return on assets
d. return on equity
Ans: C
statements.
58. Danny’s Dog Delivery has total assets of $975, sales of $989, net profit after taxes
of $56, and operating income of $576. Which of the following is the return on assets
ratio for this business?
a. 0.057
b. 0.591
c. 0.986
d. 1.01
Ans: A
statements.
59. Which of the following ratios measures the return the firm earned on its owner’s
investment in the firm?
c. return on assets
d. return on equity
Ans: D
statements.
60. Ally’s Allied Apples has net profit after taxes of $30, total assets of $989, sales of
$979, owner’s equity of $990, and interest expense of $56. Which of the following is the
return on equity for this business?
a. 0.030
b. 0.057
c. 0.989
d. 1.87
Ans: A
statements.
61. Tracking and forecasting ______ is often more critical to the survival of a business
than is profit.
a. sales
b. revenues
c. expenses
d. cash flows
Ans: D
cash flow.
62. Each business day, 12 small businesses in the United States declare bankruptcy
primarily for which of the following?
a. lack of sales
b. inexperienced management
c. poor cash-flow management
d. increasing expenses
Ans: C
cash flow.

63. The goal of good cash-flow management is to ______.

a. increase sales and thus increase revenues
b. decrease expenses and thus increase profits
c. have enough cash on hand when it is needed
d. increase asset usage and thus increase revenue
Ans: C
cash flow.
64. The period of time that begins when money is spent on raw materials and does not
end until money is collected on the sale of a finished good is known as which of the
following?
a. cash-to-cash cycle
b. cash budgets
c. sales-to-cash cycle
d. accounts receivable-to-cash cycle
Ans: A
cash flow.
65. The major complication involved in cash-flow management is ______.

a. revenue
b. sales
c. timing
d. expenses
Ans: C
cash flow.
66. The cash-to-cash cycle begins with ______.

a. manufacturing
b. using cash to purchase raw materials or inventory
c. generating sales of goods or services
d. collecting accounts receivable
Ans: B
cash flow.
67. A document that allows the firm to plan its short-term cash needs with particular
attention to periods of surplus and shortage so that short-term investments can be
made during cash surplus times and short-term loans can be taken during cash
shortages is called the ______.
a. cash-to-cash cycle
b. cash budget
c. cash planning statement
d. cash-flow statement
Ans: B
cash flow.
68. The practice of showing everyone involved in a business the numbers that are
critical to the performance of the business is called which of the following?
a. democratic management
b. open-book management
c. financial management
d. human resource management
Ans: B
cash flow.
69. An aging schedule that shows only the percentage of receivables for 0–30 days,
31–60 days, 61–90 days, and over 90 days is referred to as a/an ______.
a. macro-aging schedule
b. micro-aging schedule
c. current-aging schedule
d. future-aging schedule
Ans: A
cash flow.
70. Which of the following is the most likely place to concentrate cash flow management
strategies?
a. supplies
b. compensation
c. receivables
d. insurance
Ans: C
cash flow.
NARRBEGIN: 8-1
Scenario 8-1. Dea’s Drugstore is currently having cash-flow problems. As the bills come
due, Dea is having more difficulty ensuring that there is sufficient cash to pay those bills.
It is a relatively new problem for her business, and she is not sure what to do. The only
changes that she is aware of are some new requirements in the way insurance
companies are reimbursing their customers for prescription drugs. Overall, inventory in
the store is moving as usual and expenses have not increased from last year.
NARREND
71. In Scenario 8-1, if Dea does not solve her cash-flow problems shortly, ______.
a. she will not make a profit
b. sales will fall
c. expenses will fall
d. she may become insolvent
Ans: D
cash flow.
REF: Cognitive Domain: Comprehension
Nar: 8-1
72. In Scenario 8-1, if Dea declares bankruptcy, she will join ______ other small
businesses that declare bankruptcy each day due to poor financial management.
a. six
b. eight
c. ten
d. twelve
Ans: D
cash flow.
NAR: 8-1
73. In Scenario 8-1, all but which of the following tools may help Dea with her cash flow
problem?
a. a cash budget
b. micro-aging schedule
c. macro-aging schedule
d. an income statement
Ans: D
cash flow.
NAR: 8-1
74. In Scenario 8-1, as Dea is glancing through her accounts receivables from her
pharmacy customers, she notices that many accounts are over 90 days past due. A
schedule that would show each customer’s account, the amount they owe, and the
amount that is past due is called a/an ______.
a. macro-aging schedule
b. past due account schedule
c. micro-aging schedule
d. accounts receivable schedule
Ans: C
cash flow.
NAR: 8-1
75. In Scenario 8-1, which of the following areas may be contributing heavily to Dea’s
cash flow problems?
a. sales
b. expenses
c. accounts receivables
d. inventory costs
Ans: C
cash flow.
NAR: 8-1
NARRBEGIN: 8-2
Scenario 8-2. Denny’s Diner is undergoing an analysis of its current financial
statements. Denny is interested in seeing how his business compares to the industry. In
order to make this comparison, Denny has developed the following ratios. He has come
to you for an interpretation of his numbers.
Denny’s Diner Industry

Current Ratio 1.51 1.62
Average Collection Period 2.50 5.00
Inventory Turnover 80 75
Debt Ratio 43% 52%
Net Profit Margin 10.2 8.3
NARREND
76. In Scenario 8-2, after analyzing the current ratio, you determined that ______.
a. Denny has a problem
b. Denny can cover his current liabilities 1.51 times with his current assets
c. Denny is too far off of the industry average in this case
d. Denny has inventory that cannot easily be converted into cash
Ans: B
statements.
NAR: 8-2
77. In Scenario 8-2, after analyzing the inventory turnover ratio, you determined that
______.
a. Denny has a problem because this number is so high
b. Denny is turning his inventory over too much
c. Denny is not turning his inventory over enough to be profitable
d. Denny is keeping his inventory current, which is positive due to the nature of his
business
Ans: D
statements.
NAR: 8-2
78. In Scenario 8-2, after analyzing the average collection period ratio, you concluded
that ______.
a. Denny has a problem since his number is so low
b. Denny may have overly restrictive credit policies
c. Denny has many uncollected accounts receivable
d. Denny’s cash flow will soon be affected since his accounts receivables are not being
paid.
Ans: B
statements.
NAR: 8-2
79. In Scenario 8-2, after analyzing the debt ratio, you concluded that ______.
a. Denny has a problem because the number is so low
b. Denny has a higher risk factor than the industry
c. Denny has financed 43 percent of the assets with borrowed funds
d. Denny needs to be concerned about this ratio and increase it in the near future
Ans: C
statements.
NAR: 8-2
80. In Scenario 8-2, after analyzing the net profit margin, you determined that ______.
a. Denny has a problem because this number is so high
b. Denny is generating 10 cents of after-tax profit per each dollar of sales
c. Denny is generating 10 percent on after-tax profits
d. Denny should be concerned with management efficiency
Ans: B
statements.
NAR: 8-2
True/False
1. According to the text, the accounting process helps the small business owner
translate numbers--the language of business--into plain English.
Ans: T
small business.
2. The majority of the mismanagement decisions that cause small businesses to fail are
related to finance.
Ans: T
small business.
3. Assets are what your business owes, whereas liabilities are what your business
owns.
Ans: F
business.
4. Another name for assets is net worth.

Ans: F
business.
5. When using a double-entry accounting system, debits always equal owner’s equity.
Ans: F
business.
6. Using a single-entry accounting system will allow a small business owner to produce
an income statement and a balance sheet.
Ans: F
business.
7. Small business owners should always use separate checkbooks for their businesses
and their personal lives.
Ans: T
business.
8. In the accounting equation, Assets = Liabilities + Revenue.

Ans: F
business.
9. The accounting equation Assets = Liabilities + Equity is illustrated by the profit-and-

loss financial statement.
Ans: F
business.
10. “Cash flow = Receipts − Disbursements” is the basis of the cash flow statement.
Ans: T
business.
11. Generally accepted accounting principles are intended to create financial statement
formats that are unique to each industry.
Ans: F
business.
12. When using the accrual basis method of accounting, transactions are recorded
when cash is actually received and expenses are paid.
Ans: F
business.
13. The three most important financial statements for providing financial information
about a business are the income statement, the balance sheet, and the statement of
retained earnings.
Ans: F
business.

14. The cash flow statement is a critical financial statement, often more important to the
survival of a business than profit as reported on the income statement.
Ans: T
business.
15. When preparing common-size statements, full or partial estimates are used since
the business owner is making projections rather than recording actual transactions.
Ans: F
business.
16. The expertise with which the small business owner can understand, interpret, and
use the information found in the financial statements will determine the soundness of
the financial decisions made.
Ans: T
statements.
17. On a weekly basis, business managers should record any money that is paid out.
Ans: F
statements.
18. Ratio analysis is the most common form of financial analysis.

Ans: T
statements.
19. Industry average analysis compares firms to industry leaders.

Ans: F
statements.
20. Financial ratios by themselves tell the small business owner very little.
Ans: T
statements.
21. Benchmarking involves computing financial ratios of an industry leader and

comparing those ratios with one’s own firm.
Ans: T
statements.
22. Activity ratios are used to measure a firm’s ability to meet its short-term obligations
to creditors as they come due.
Ans: F
statements.
23. Low average collection periods usually indicate many uncollectible receivables,
while high average collection periods may indicate overly restrictive credit-granting
policies.
Ans: F
statements.
24. A high fixed asset turnover ratio generally reflects good overall management
because it measures how efficiently the firm uses all of its assets to generate sales.
Ans: F
statements.
25. A low net profit margin ratio indicates that expenses are too high relative to sales.
Ans: T
statements.
26. A high return on equity ratio is generally a good indication for a business; however,
this ratio is highly affected by debt and may not be an accurate measurement of
management effectiveness.
Ans: T
statements.
27. Each business day, 5,000 small businesses in the United States declare bankruptcy
primarily because of poor cash flow management.
Ans: F
cash flow.

28. Without proactively managing a firm’s cash flow, the firm is exposed to many risks,
each of which could spell disaster.
Ans: T
cash flow.
29. The primary reason a small business needs adequate cash flow is to pay the bills
incurred by the business.
Ans: T
cash flow.
30. A cash budget typically covers a two-year period that is divided into smaller
intervals.
Ans: F
cash flow.
31. Aging schedules are listings of a firm’s account payables according to the length of
time they are outstanding.
Ans: F
cash flow.
Short Answer
1. Discuss the importance of financial records to a small business.
Ans: necessary in order to make managerial decisions
necessary in order to know how much is owed and how much is owned
helps to identify financial problems before they become serious
used to prepare tax returns
needed to survive in a competitive marketplace
small business.
2. Discuss the three primary financial records that are needed by small business
owners.
Ans: Income statement
also called the profit-and-loss statement
summarizes income and expenses
shows cost of goods sold
Profit = Revenue – Expense
Balance sheet
two main sections
assets and liabilities
the two sides must balance
Assets = Liabilities + Equity
Statement of cash flows
highlights the cash coming into and going out of a business
the importance of tracking cash flow cannot be overstated.
Cash flow = Receipts – Disbursements
business.
3. List at least four actions that should be taken on a weekly basis by a business
manager.
Ans: update a cash-flow statement
update accounts receivable
updates accounts payable
calculate payroll
note when tax items are due
business.

4. Compare and contrast liquidity ratios and activity ratios.

Ans: Liquidity ratios
Used to measure a firm’s ability to meet short-term obligations to creditors as
they come due.
Uses the firm’s current assets and current liabilities.
Current ratio and quick ratio are two important liquidity measures.
Activity ratios
Used to measure the speed with which various accounts are converted into sales
or cash.
Used to measure how efficiently a firm uses its assets.
Inventory turnover, average collection period, fixed asset turnover, and total
asset turnover are activity measures.
statements.
5. Compare and contrast leverage ratios and profitability ratios.

Ans: Leverage ratios
Used to measure the extent to which a firm uses debt as a source of financing.
Measures ability to service debt.
Debt ratio and times interest earned ratio are two measures of leverage.
Profitability ratios
Used to measure the ability of a company to turn sales into profits.
Used to measure overall effectiveness of the management team.
Net profit margin, return on assets, and return on equity are measures of
profitability.
statements.
6. Explain the importance of cash flow for a small business owner.

Ans: Critical because if there is not enough money to pay the bills, the business will be
bankrupt.
Majority of business failures are due to poor cash-flow management.
Requires as much attention as the other major aspects of a small business.
Test Bank for Small Business Management Creating a Sustainable Competitive Advantage, 7th Ed

Ultimate goal is to maximize the use of cash.

cash flow.
7. List at least five tips for managing accounts receivable.

Ans: establish sound credit practices
process orders quickly
prepare the invoice the same day as the order is received
mail the invoice the same day it is prepared
offer discounts for prompt payment
aggressively follow up on past-due accounts
deposit payments promptly
negotiate better terms with suppliers and banks
keep a tight control on inventory review and reduce expenses
pay bills on time, but not before they are due
be smart in designing your invoice
cash flow.
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5. ______ refers to what the business owes.

7. An accounting system in which every business transaction is recorded in an asset

8. In double-entry accounting systems, debits must always equal ______.

11. In the accounting equation, Assets = Liabilities + ______.

12. In the accounting equation, Cash Flow = Receipts − ______.

d. the business has increasing expenses

REF: Cognitive Domain: Knowledge

29. Which of the following is not a major category of financial ratios?

30. Benchmark analysis compares firms to ______.

Difficulty Level: Easy

37. Current ratios of 1.0 or less are considered ______.

44. High average collection periods usually indicate ______.

TOP: AACSB Standard: Analytical thinking

b. total asset turnover

55. Which of the following ratios is widely used as an indication of management

Answer Location: Concept Module 8.4: Managing Cash Flow

63. The goal of good cash-flow management is to ______.

65. The major complication involved in cash-flow management is ______.

66. The cash-to-cash cycle begins with ______.

Denny’s Diner Industry

4. Another name for assets is net worth.

8. In the accounting equation, Assets = Liabilities + Revenue.

9. The accounting equation Assets = Liabilities + Equity is illustrated by the profit-and-

Answer Location: Concept Module 8.2: Small Business Accounting Basics

18. Ratio analysis is the most common form of financial analysis.

19. Industry average analysis compares firms to industry leaders.

21. Benchmarking involves computing financial ratios of an industry leader and

REF: Cognitive Domain: Knowledge

REF: Cognitive Domain: Comprehension

4. Compare and contrast liquidity ratios and activity ratios.

5. Compare and contrast leverage ratios and profitability ratios.

6. Explain the importance of cash flow for a small business owner.

Hatten, Small Business Management 7e

Ultimate goal is to maximize the use of cash.

7. List at least five tips for managing accounts receivable.

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