PRM Exam 2 Questions and Answers Latest Update 2025-2026
Capital needs for setup - Answers (operations taking place before business opening)
Lease deposit and renovation
Equipment and fixtures
Inventory
Licenses and permits
Capital needs for start-up - Answers (used just prior to business opening; 2-3 weeks before and
after opening)
Decorative fixtures
Office supplies
Promotional expenditure
Types of capital and definitions - Answers Working capital: money available to carry on day-to
day activities
Short-term capital: money borrowed to finance obligations over short time period
Long-term capital: longer time period (as much as 10 years)
Sources for long-term capital - Answers Personal funds
Equity financing (selling partial ownership to investors)
Debt financing: loans with interest
Sources of equity financing - Answers Partner
-General: helps with management
-Limited: not involved in mgmt
Relative
Friend
Venture capitalist
Stocks
-Common: max return on investment
,-Preferred: gives investor first prefernce on company assets after debtors receive their money
-Convertible preferred stocks
Sources of debt financing - Answers Commercial banks
Commercial finance companies
Life insurance companies
Consumer finance companes
Government (Samll Business Administration)
Suppliers
Miscellaneous
What is the business entity concept? - Answers Every business is treated as a separate entity,
distinct from owners and every other business
What is the cost principle? - Answers All goods and services purchased are recorded at cost
(does not reflect current worth)
What is the stable dollar concept? - Answers Books are not adjusted based on changing value of
the dollar (inflation, deflation...)
What is accrual accounting? - Answers Revenues recognized when good/services are rendered,
not necessarily when cash is received
Prepaid expenses are considered what on the balance sheet? - Answers Assets (though they
become expenses as they are used)
Define current assets - Answers Cash assets or assets that will become cahs w/in a year (cash,
accounts receivable, inventory; short-term investments may be too)
Define long-term assets - Answers Assets that would take a long time (over a year) to turn into
cash
Long-term asset types and definitions/examples - Answers Fixed assets: property, buildings,
equipment, fixtures
Investments
Intangible assets (rarely included on a balance sheet)
Define unearned revenue; place on balance sheet - Answers Business gets paid for
good/services before supplying those goods/services
, Liability until those goods/services are delivered
Define current liabilities - Answers Obligations that must be paid within a year (accounts
payabble, short-term notes payable, wages)
Define long-term liabilities - Answers Obligations due more than a year from the balance-sheet
date
Owner's equity aka - Answers Net worth
Net worth aka - Answers Owner's equity
If you purchase building for $100,000 using $20,000 of your own money and $80,000 from bank,
what is the owner's equity? - Answers 20,000
Accounting equation - Answers Assets = liabilities + owner's equity (assets - liabilities = owner's
equity)
What is the balance sheet based on? - Answers Accounting equation
Assets = liabilities + owner's equity
Owner's equity components - Answers Contributed capital
Retained earnings: portion of profits that firm has earned over the years which has not been
distributed to the owners in form of dividends (kept in the business to finance acquisition of
new assets)-cumulative record ("how much has been kept in the business"
Define financial position - Answers Pharmacy's ability to meet all of its obligations (current and
long-term) by using all of its assetes and without seriously impairing the company's operation
Components of balance sheet - Answers *Assets*
Current assets
-Cash
-Accounts receivable
-Inventory
Total current assets
Fixed assets
Other assets
Total assets
Capital needs for setup - Answers (operations taking place before business opening)
Lease deposit and renovation
Equipment and fixtures
Inventory
Licenses and permits
Capital needs for start-up - Answers (used just prior to business opening; 2-3 weeks before and
after opening)
Decorative fixtures
Office supplies
Promotional expenditure
Types of capital and definitions - Answers Working capital: money available to carry on day-to
day activities
Short-term capital: money borrowed to finance obligations over short time period
Long-term capital: longer time period (as much as 10 years)
Sources for long-term capital - Answers Personal funds
Equity financing (selling partial ownership to investors)
Debt financing: loans with interest
Sources of equity financing - Answers Partner
-General: helps with management
-Limited: not involved in mgmt
Relative
Friend
Venture capitalist
Stocks
-Common: max return on investment
,-Preferred: gives investor first prefernce on company assets after debtors receive their money
-Convertible preferred stocks
Sources of debt financing - Answers Commercial banks
Commercial finance companies
Life insurance companies
Consumer finance companes
Government (Samll Business Administration)
Suppliers
Miscellaneous
What is the business entity concept? - Answers Every business is treated as a separate entity,
distinct from owners and every other business
What is the cost principle? - Answers All goods and services purchased are recorded at cost
(does not reflect current worth)
What is the stable dollar concept? - Answers Books are not adjusted based on changing value of
the dollar (inflation, deflation...)
What is accrual accounting? - Answers Revenues recognized when good/services are rendered,
not necessarily when cash is received
Prepaid expenses are considered what on the balance sheet? - Answers Assets (though they
become expenses as they are used)
Define current assets - Answers Cash assets or assets that will become cahs w/in a year (cash,
accounts receivable, inventory; short-term investments may be too)
Define long-term assets - Answers Assets that would take a long time (over a year) to turn into
cash
Long-term asset types and definitions/examples - Answers Fixed assets: property, buildings,
equipment, fixtures
Investments
Intangible assets (rarely included on a balance sheet)
Define unearned revenue; place on balance sheet - Answers Business gets paid for
good/services before supplying those goods/services
, Liability until those goods/services are delivered
Define current liabilities - Answers Obligations that must be paid within a year (accounts
payabble, short-term notes payable, wages)
Define long-term liabilities - Answers Obligations due more than a year from the balance-sheet
date
Owner's equity aka - Answers Net worth
Net worth aka - Answers Owner's equity
If you purchase building for $100,000 using $20,000 of your own money and $80,000 from bank,
what is the owner's equity? - Answers 20,000
Accounting equation - Answers Assets = liabilities + owner's equity (assets - liabilities = owner's
equity)
What is the balance sheet based on? - Answers Accounting equation
Assets = liabilities + owner's equity
Owner's equity components - Answers Contributed capital
Retained earnings: portion of profits that firm has earned over the years which has not been
distributed to the owners in form of dividends (kept in the business to finance acquisition of
new assets)-cumulative record ("how much has been kept in the business"
Define financial position - Answers Pharmacy's ability to meet all of its obligations (current and
long-term) by using all of its assetes and without seriously impairing the company's operation
Components of balance sheet - Answers *Assets*
Current assets
-Cash
-Accounts receivable
-Inventory
Total current assets
Fixed assets
Other assets
Total assets
