What Is Your Financial IQ?

 

1. The primary goal of accrual accounting is to . . .

   A. Minimize profits  B. Maximize revenue recognition  C. Match the timing of revenue and expenses  D. File tax returns

2. Under accrual accounting, revenue is recognized when the . . .

   A. Customer pays  B. Invoice is sent  C. Underlying event occurs  D. Order is placed

3. Which of the following is NOT part of the standard set of financial statements?

   A. Income statement (or profit and loss statement)  B. Balance sheet  C. Statement of cash flows (sometimes called a Sources and Uses statement)  D. Business status statement

4. Which is usually NOT an appropriate source of capital for high-risk startup capital?

   A. Banks  B. Personal savings  C. Friends and family  D. Angel investors

5. When reviewing your monthly income statement, you should review it in comparison to . . .

   A. Prior months (at least six)  B. Budget  C. Same month of the prior year  D. All of the above

6. The primary purpose of a statement of cash flows is to . . .

   A. Indicate how much cash the business needs to operate  B. Explain the difference between net income and changes in cash balance  C. Provide detail on revenue mix  D. Enhance understanding of the company's cost structure

7. Gross profit is best defined as . . .

   A. Revenue less direct cost of goods sold or services performed  B. Profits before salaries to owners  C. Revenue less all expenses except taxes  D. Total sales or revenue

8. The equity section of the balance sheet represents . . .

   A. The cumulative invested capital and retained earnings of the business  B. Cash on hand  C. The amount for which the business could be sold  D. The value of the company's stock

9. The most commonly used proxy for cash flow in order to assess acquisition value is . . .

   A. Net income  B. Pre-tax profit  C. Gross profit  D. EBITDA (Earnings Before Interest Taxes and Depreciation)

10. A company's borrowing base for a bank's revolving credit line typically include . . .

    A. Accounts receivable and accounts payable  B. Accounts receivable and inventory  C. Equity less accounts payable  D. All assets

11. The line of distinction between current and long term assets and current and long term liabilities on the balance sheet is . . .

    A. 1 month  B. 3 months  C. 12 months  D. 5 years

12. What is the optimal time frame to review financial monthly statements?

    A. The first day of the following month  B. Around ten to twenty days into the following month  C. Between the 25th and last day of the following month  D. 30 – 45 days after the month ends