BMAL-590 Business Finance Exam Questions and Answers With Verified
Solutions 2025
Generally Accepted Accounting Principles (GAAP) - ✔✔a set of accounting standards that is used in the
preparation of financial statements
developed by the Financial Accounting Standards Board (FASB)
Financial Accounting Standards Board (FASB) - ✔✔The primary accounting standard-setting body in the
United States.
examines controversial accounting topics and issues standards that, in terms of their impact on
accounting practices, almost have the force of law.
Securities and Exchange Commission (SEC) - ✔✔The agency of the U.S. government that oversees U.S.
financial markets and accounting standard-setting bodies.
regulates publicly traded U.S. companies as well as the nation's stock and bond markets. It mandates
that companies generate financial statements following international accounting standards (IAS)
The SEC requires four key financial statements:
(1) the balance sheet
(2) the income statement
(3) the statement of retained earnings
(4) the statement of cash flows
Public Company Accounting Oversight Board (PCAOB) - ✔✔The group charged with determining auditing
standards and reviewing the performance of auditing firms. It effectively gives the SEC authority to
oversee the accounting profession's activities
Established by the Sarbanes-Oxley Act of 2002
,International Financial Reporting Standards (IFRS) - ✔✔used in many countries as the regulatory basis
for the preparation of financial statements. They are designed to provide a common global language for
financial reporting, particularly in the European Union, so published financial information is comparable
across international boundaries.
A firm's balance sheet - ✔✔presents a "snapshot" view of the company's financial position at a specific
moment in time.
By definition, a firm's assets must equal the combined value of its liabilities and stockholders' equity.
The basic balance sheet equation is Assets = Liabilities + Stockholders' Equity. Thus, creditors and equity
investors finance all of a firm's assets.
The balance sheet consist of three sections that list a firm's assets and liabilities as well as the claims of
the stockholders.
ssets and liabilities appear in descending order of liquidity,
Liquidity - ✔✔The length of time it takes to convert accounts into cash during the normal course of
business. The most liquid asset (cash) appears first, and the least liquid (fixed assets) comes last.
Current assets are those that are easy to sell and turn into cash, while fixed assets are physical assets
like buildings and equipment.
Assets - ✔✔include everything that can be used to benefit the business or give the company the right to
receive benefits
Current Liabilities - ✔✔those that must be paid within one year and include accounts payable, notes
payable, and accrued expenses
Long-term liabilities - ✔✔due after more than a year and include deferred taxes and long-term debt.
,stockholders' equity - ✔✔The last entry on the balance sheet, stockholders' equity is the owners'
residual share of the business, including their original investment plus any money the firm has earned
and retained since its inception.
Stockholders' equity includes preferred stock, common stock, paid-in-capital in excess of par, and
retained earnings. However, the net worth of the firm includes only the common stock, paid-in-capital in
excess of par, and retained earning.
Balance Sheet Assets - ✔✔-organized in order of liquidity:
1. Current Assets
-includes all cash and items expected to be converted into cash in next 12 months
A. Cash and Equivalents - money market
B. Accounts Receivable - amounts due from customers
C. Inventory - cost of raw materials
D. Prepaid Expenses - rents, taxes, prepaid advertising
2. Fixed Assets
A. Property Plant and Equipment
-factories
3. Other Assets
A. Intangible Assets
-brand names, trademarks, formulas, etc
Cash and cash equivalents - ✔✔assets such as checking account balances at commercial banks that can
be used directly as means of payment.
Marketable securities - ✔✔represent liquid short-term investments, which financial analysts view as a
form of "near cash." They include Treasury notes, commercial paper, and others.
, Accounts receivable - ✔✔represent the amount customers owe the firm from sales made on credit.
Inventories - ✔✔include raw materials, work in process (partially finished goods), and finished goods
held by the firm.
Intangible assets - ✔✔items such as patents, trademarks, copyrights, or mineral rights entitling the
company to extract oil and gas on specific properties.
Gross property, plant, and equipment (PP&E) - ✔✔the original cost of all real property, structures, and
long-lived equipment owned by the firm.
Net property, plant, and equipment - ✔✔calculated as Gross PP&E less accumulated depreciation - the
cumulative expense recorded for the depreciation of fixed assets since their purchase; this reflects a
decline in the asset's economic value over time. The one fixed asset that is not depreciated is land
because it seldom declines in value.
"book value" - ✔✔Net PP&E on the balance sheet is the total "book value" of the assets, which is the
original cost of the assets less accumulated depreciation to date. Depreciation is taken according to
standardized formulas and does not reflect the reduction in actual value of the assets which can vary for
many reasons.
Liabilities - ✔✔debts that the firm owes to others
current liabilities on the balance sheet include three types of accounts: - ✔✔Accounts Payable
Notes Payable
Accrued Expenses
Accounts Payable - ✔✔the amounts owed for credit purchases by the firm
Notes Payable - ✔✔outstanding short-term loans, typically from commercial banks.
Solutions 2025
Generally Accepted Accounting Principles (GAAP) - ✔✔a set of accounting standards that is used in the
preparation of financial statements
developed by the Financial Accounting Standards Board (FASB)
Financial Accounting Standards Board (FASB) - ✔✔The primary accounting standard-setting body in the
United States.
examines controversial accounting topics and issues standards that, in terms of their impact on
accounting practices, almost have the force of law.
Securities and Exchange Commission (SEC) - ✔✔The agency of the U.S. government that oversees U.S.
financial markets and accounting standard-setting bodies.
regulates publicly traded U.S. companies as well as the nation's stock and bond markets. It mandates
that companies generate financial statements following international accounting standards (IAS)
The SEC requires four key financial statements:
(1) the balance sheet
(2) the income statement
(3) the statement of retained earnings
(4) the statement of cash flows
Public Company Accounting Oversight Board (PCAOB) - ✔✔The group charged with determining auditing
standards and reviewing the performance of auditing firms. It effectively gives the SEC authority to
oversee the accounting profession's activities
Established by the Sarbanes-Oxley Act of 2002
,International Financial Reporting Standards (IFRS) - ✔✔used in many countries as the regulatory basis
for the preparation of financial statements. They are designed to provide a common global language for
financial reporting, particularly in the European Union, so published financial information is comparable
across international boundaries.
A firm's balance sheet - ✔✔presents a "snapshot" view of the company's financial position at a specific
moment in time.
By definition, a firm's assets must equal the combined value of its liabilities and stockholders' equity.
The basic balance sheet equation is Assets = Liabilities + Stockholders' Equity. Thus, creditors and equity
investors finance all of a firm's assets.
The balance sheet consist of three sections that list a firm's assets and liabilities as well as the claims of
the stockholders.
ssets and liabilities appear in descending order of liquidity,
Liquidity - ✔✔The length of time it takes to convert accounts into cash during the normal course of
business. The most liquid asset (cash) appears first, and the least liquid (fixed assets) comes last.
Current assets are those that are easy to sell and turn into cash, while fixed assets are physical assets
like buildings and equipment.
Assets - ✔✔include everything that can be used to benefit the business or give the company the right to
receive benefits
Current Liabilities - ✔✔those that must be paid within one year and include accounts payable, notes
payable, and accrued expenses
Long-term liabilities - ✔✔due after more than a year and include deferred taxes and long-term debt.
,stockholders' equity - ✔✔The last entry on the balance sheet, stockholders' equity is the owners'
residual share of the business, including their original investment plus any money the firm has earned
and retained since its inception.
Stockholders' equity includes preferred stock, common stock, paid-in-capital in excess of par, and
retained earnings. However, the net worth of the firm includes only the common stock, paid-in-capital in
excess of par, and retained earning.
Balance Sheet Assets - ✔✔-organized in order of liquidity:
1. Current Assets
-includes all cash and items expected to be converted into cash in next 12 months
A. Cash and Equivalents - money market
B. Accounts Receivable - amounts due from customers
C. Inventory - cost of raw materials
D. Prepaid Expenses - rents, taxes, prepaid advertising
2. Fixed Assets
A. Property Plant and Equipment
-factories
3. Other Assets
A. Intangible Assets
-brand names, trademarks, formulas, etc
Cash and cash equivalents - ✔✔assets such as checking account balances at commercial banks that can
be used directly as means of payment.
Marketable securities - ✔✔represent liquid short-term investments, which financial analysts view as a
form of "near cash." They include Treasury notes, commercial paper, and others.
, Accounts receivable - ✔✔represent the amount customers owe the firm from sales made on credit.
Inventories - ✔✔include raw materials, work in process (partially finished goods), and finished goods
held by the firm.
Intangible assets - ✔✔items such as patents, trademarks, copyrights, or mineral rights entitling the
company to extract oil and gas on specific properties.
Gross property, plant, and equipment (PP&E) - ✔✔the original cost of all real property, structures, and
long-lived equipment owned by the firm.
Net property, plant, and equipment - ✔✔calculated as Gross PP&E less accumulated depreciation - the
cumulative expense recorded for the depreciation of fixed assets since their purchase; this reflects a
decline in the asset's economic value over time. The one fixed asset that is not depreciated is land
because it seldom declines in value.
"book value" - ✔✔Net PP&E on the balance sheet is the total "book value" of the assets, which is the
original cost of the assets less accumulated depreciation to date. Depreciation is taken according to
standardized formulas and does not reflect the reduction in actual value of the assets which can vary for
many reasons.
Liabilities - ✔✔debts that the firm owes to others
current liabilities on the balance sheet include three types of accounts: - ✔✔Accounts Payable
Notes Payable
Accrued Expenses
Accounts Payable - ✔✔the amounts owed for credit purchases by the firm
Notes Payable - ✔✔outstanding short-term loans, typically from commercial banks.
