WGU C214 OA Financial Management
Questions and Answers ()
The goal of the corporation is to: - (correct answer) maximize stock price
What makes an efficient market? - (correct answer) Competitive market, liquidity,
transparency
What is the relationship between risk and required return? - (correct answer) As risk
increases, required return increases.
What are the 3 main financial statements? - (correct answer) Income statement, the
Balance Sheet., and the statement of cash flows
Which financial statement reflects a POINT in time (not a period in time) - (correct
answer) Balance sheet
What is Revenue? - (correct answer) Amount generated by sale of products and
services
What is Expenses - (correct answer) Amount incurred to manufacture products
What is Income? - (correct answer) The difference between Revenue and Expenses
What are Assets? - (correct answer) Items that are owned by the company
Land, building, equipment, machinery, supplies, inventory
What's the difference between a long term asset and a short term asset? - (correct
answer) Short term assets are expected to be converted to cash within one year, long
term assets are typically more valuable but less liquid (projected to keep for more than a
year)
What is Equity? - (correct answer) Amounts invested in the company by
shareholders/investors. Happens when somebody buys stock in your company.
What is reported on the Income Statement? - (correct answer) Revenues, Expenses
and Income
(Income statement is the FIRST statement a company has to prepare)
What is reported on the Balance Sheet? - (correct answer) assets, liabilities, equity
Assets = Liability + Equity
What equation is the foundation for all of financial accounting? - (correct answer)
Assets = Liability + Equity
What are liabilities? - (correct answer) Amounts owed by the company to others.
i.e. Accounts payable, salaries payable, income tax payable. If you see the word
"payable" it's a liability.
What are short term vs long term liabilities? - (correct answer) Short term liabilities are
those debts that are paid off in one year such as accounts payable, salaries payable
and short term loans.
Long term liabilities are due in more than a year, such as long term loans, bonds, and
lease agreements. LTL are used to finance major investments such as purchasing
property, plant and equipment.
What is the Revenue Recognition principle? - (correct answer) Revenue is recognized
when product or service is delivered to the customer.
, *The moment you deliver the product or service, you have earned the revenue and have
to report it in the income statement. You don't have to be paid by the customer to report
the revenue.
What is the expense recognition principle? - (correct answer) Expenses are
recognized when expenses are incurred by the company.
*You don't have to have paid for it yet. You recognize it when it is incurred (employees
that work today, you owe them today's work and it's recognized as today's expense)
What is the accrual based accounting system? - (correct answer) It's the terminology
that we use in financial accounting for revenue recognition and expense recognition
principle.
What is included in the income statement and NOT included in the statement of Cash
Flows? - (correct answer) Depreciation Expense
(the only expense for which cash will never be paid)
What is the Statement of Retained Earnings? - (correct answer) A company earns
money/earnings every year. Some of those earnings are paid back to the shareholders
(dividends) and the rest is retained by the company to grow the company and benefit
the shareholders.
Net Income Equation if you know the sales revenue and the margin: - (correct answer)
Sales * Net Margin
List and summarize the 4 financial statements: - (correct answer) Income Statement:
Prepared for a period of time
Retained Earnings Statement: Prepared for a period of time
Balance Sheet: Prepared for a POINT in time
Statement of Cash Flows: Prepared for a period of time
Basic Equation for the Balance Sheet: - (correct answer) Equity = Assets - Liabilities
OR
Assets = Liabilities + Equity
What is the statement of cash flows? - (correct answer) It shows the change in cash
balance for a period of time.
What are the 3 types of cash flows? - (correct answer) CFO: Cash flow from
Operations
CFI: Cash flow from Investing
CFF: Cash flow from Financing
What is increase in networking capital? - (correct answer) Change in current assets -
change in current liabilities
List some current assets - (correct answer) Accounts receivable, Inventory, Prepaid
Expenses
List some Current Liabilities - (correct answer) Accounts Payable, Salaries Payable,
Accrued Expenses
What's another word for Current Assets? - (correct answer) Operating Assets
What's another word for Current Liabilities - (correct answer) Operating Liabilities
What is change in current assets (formula) - (correct answer) Increase in current
assets - Decrease in current assets
What is change in current liability (formula) - (correct answer) Increase in current
liability - Decrease in current liability
Questions and Answers ()
The goal of the corporation is to: - (correct answer) maximize stock price
What makes an efficient market? - (correct answer) Competitive market, liquidity,
transparency
What is the relationship between risk and required return? - (correct answer) As risk
increases, required return increases.
What are the 3 main financial statements? - (correct answer) Income statement, the
Balance Sheet., and the statement of cash flows
Which financial statement reflects a POINT in time (not a period in time) - (correct
answer) Balance sheet
What is Revenue? - (correct answer) Amount generated by sale of products and
services
What is Expenses - (correct answer) Amount incurred to manufacture products
What is Income? - (correct answer) The difference between Revenue and Expenses
What are Assets? - (correct answer) Items that are owned by the company
Land, building, equipment, machinery, supplies, inventory
What's the difference between a long term asset and a short term asset? - (correct
answer) Short term assets are expected to be converted to cash within one year, long
term assets are typically more valuable but less liquid (projected to keep for more than a
year)
What is Equity? - (correct answer) Amounts invested in the company by
shareholders/investors. Happens when somebody buys stock in your company.
What is reported on the Income Statement? - (correct answer) Revenues, Expenses
and Income
(Income statement is the FIRST statement a company has to prepare)
What is reported on the Balance Sheet? - (correct answer) assets, liabilities, equity
Assets = Liability + Equity
What equation is the foundation for all of financial accounting? - (correct answer)
Assets = Liability + Equity
What are liabilities? - (correct answer) Amounts owed by the company to others.
i.e. Accounts payable, salaries payable, income tax payable. If you see the word
"payable" it's a liability.
What are short term vs long term liabilities? - (correct answer) Short term liabilities are
those debts that are paid off in one year such as accounts payable, salaries payable
and short term loans.
Long term liabilities are due in more than a year, such as long term loans, bonds, and
lease agreements. LTL are used to finance major investments such as purchasing
property, plant and equipment.
What is the Revenue Recognition principle? - (correct answer) Revenue is recognized
when product or service is delivered to the customer.
, *The moment you deliver the product or service, you have earned the revenue and have
to report it in the income statement. You don't have to be paid by the customer to report
the revenue.
What is the expense recognition principle? - (correct answer) Expenses are
recognized when expenses are incurred by the company.
*You don't have to have paid for it yet. You recognize it when it is incurred (employees
that work today, you owe them today's work and it's recognized as today's expense)
What is the accrual based accounting system? - (correct answer) It's the terminology
that we use in financial accounting for revenue recognition and expense recognition
principle.
What is included in the income statement and NOT included in the statement of Cash
Flows? - (correct answer) Depreciation Expense
(the only expense for which cash will never be paid)
What is the Statement of Retained Earnings? - (correct answer) A company earns
money/earnings every year. Some of those earnings are paid back to the shareholders
(dividends) and the rest is retained by the company to grow the company and benefit
the shareholders.
Net Income Equation if you know the sales revenue and the margin: - (correct answer)
Sales * Net Margin
List and summarize the 4 financial statements: - (correct answer) Income Statement:
Prepared for a period of time
Retained Earnings Statement: Prepared for a period of time
Balance Sheet: Prepared for a POINT in time
Statement of Cash Flows: Prepared for a period of time
Basic Equation for the Balance Sheet: - (correct answer) Equity = Assets - Liabilities
OR
Assets = Liabilities + Equity
What is the statement of cash flows? - (correct answer) It shows the change in cash
balance for a period of time.
What are the 3 types of cash flows? - (correct answer) CFO: Cash flow from
Operations
CFI: Cash flow from Investing
CFF: Cash flow from Financing
What is increase in networking capital? - (correct answer) Change in current assets -
change in current liabilities
List some current assets - (correct answer) Accounts receivable, Inventory, Prepaid
Expenses
List some Current Liabilities - (correct answer) Accounts Payable, Salaries Payable,
Accrued Expenses
What's another word for Current Assets? - (correct answer) Operating Assets
What's another word for Current Liabilities - (correct answer) Operating Liabilities
What is change in current assets (formula) - (correct answer) Increase in current
assets - Decrease in current assets
What is change in current liability (formula) - (correct answer) Increase in current
liability - Decrease in current liability
