8.1 Review of Key Topics

• The Income Statement reports a company's revenues, expenses, and net income over a period of time

  True
• Companies prepare financial statements using standardized accounting principles to ensure reliability and comparability

  True
• Direct costs in cost accounting include materials and labor
• Cost accounting focuses on past and current costs for control and decision-making
• Match the profitability ratio with its definition:

  Gross Profit Margin ↔️ Measures profit after deducting the cost of goods sold

  Net Profit Margin ↔️ Measures profit after all expenses
• The Inventory Turnover ratio measures how well a company uses its assets
• Improving accounts receivable collection reduces the time it takes to collect payments from customers
• Working capital refers to the difference between a company's current assets and current liabilities
• Match the component of working capital with its definition:

  Current Assets ↔️ Assets that can be converted to cash within one year

  Current Liabilities ↔️ Obligations that must be paid within one year
• Effective working capital management ensures a company has sufficient liquidity to operate.


  True
• What type of cash flows are included in the operating activities section of a cash flow statement?

  Core business operations
• The cash flow statement provides insights into a company's ability to generate cash.


  True
• The income statement reports a company's revenues, expenses, and net income
• Order the steps involved in financial statement analysis:

  1️⃣ Calculate ratios and metrics

  2️⃣ Evaluate profitability, liquidity, solvency, and efficiency

  3️⃣ Make informed decisions
• Budgeting involves planning and predicting future revenues and expenses
• Match the financial management tool with its definition:

  Cost Accounting ↔️ Processes to track, analyze, and report costs

  Budgeting ↔️ Involves planning and predicting future revenues and expenses
• Direct costs in cost accounting include materials and labor
• Cost accounting focuses on future financial plans for strategic goals.

  False
• Liquidity ratios assess a company's ability to meet short-term obligations
• What does Inventory Turnover measure?

  Asset utilization
• Improving accounts receivable collection is a strategy for managing working capital.

  True
• Main sections of a cash flow statement

  1️⃣ Operating Activities

  2️⃣ Investing Activities

  3️⃣ Financing Activities
• What does a cash flow statement show?

  Inflows and outflows of cash
• What do cash flows from operating activities represent?

  Core business operations
• What is the primary focus of financing activities in a cash flow statement?

  Equity and debt structure
• What is a partnership in accounting terms?

  Two or more individuals jointly own a company
• Partnerships are taxed as pass-through entities, where profits and losses are passed through to the partners' personal tax returns.


  True
• Match the account with its corresponding action when partners contribute capital:

  Cash ↔️ Debit

  Partner Capital ↔️ Credit
• A limited company is a business structure where the company is a separate legal entity from its shareholders.
• How is share capital recorded when a limited company is formed?

  Debit asset, credit share capital
• What is a key difference between a partnership and a limited company in terms of liability?

  Limited liability for shareholders
• The Balance Sheet provides a snapshot of a company's assets, liabilities, and equity
• The Cash Flow Statement shows the inflows and outflows of cash
• Financial statement analysis involves calculating ratios and metrics to evaluate a company's profitability, liquidity, solvency, and efficiency
• A sales budget is a key component of budgeting


  True
• Financial forecasting is a primary use of budgeting
• The Current Ratio measures a company's ability to meet its short-term obligations


  True
• Match the working capital component with its definition:

  Current Assets ↔️ Assets converted to cash within one year

  Current Liabilities ↔️ Obligations paid within one year
• What is one strategy companies can use to manage their working capital effectively?

  Optimizing inventory levels
• Current assets include items that can be converted to cash within one year.


  True