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1. (p. 484) Finance is the function in a business that acquires funds for the firm and manages those funds within the
firm.
2. (p. 484) Managing a firm’s resources so that it can meet its goals and objectives is the goal of financial
accounting.
3. (p. 484) A financial manager makes recommendations to top executives regarding strategies for improving the
financial strength of a firm.
4. (p. 484) The duties and responsibilities of a financial manager are virtually identical to the duties and
responsibilities of an accountant.
5. (p. 484) Financial managers use data prepared by accountants to develop strategies for improving the financial
performance of the firm.
6. (p. 484) There is actually a stronger relationship between finance and marketing than there is between finance
and accounting.
7. (p. 484) Financial managers examine the data prepared by accountants and make recommendations to top
management regarding strategies for improving the financial performance of the company.
8. (p. 485) Financial management is more important for a large firm than it is for a small firm.
9. (p. 485) The chief financial officer (CFO) is responsible for accounting and financial functions.
10. (p. 484) The chief financial officer of a company is responsible for managing cash, accounts receivable, and
inventory.
11. (p. 484–485) While finance is a critical activity for profit-seeking organizations, by definition nonprofit
organizations are not required to fulfill the finance function.
12. (p. 484, figure 18.1) One activity of the accounting function is to collect payments from overdue customer
accounts.
13. (p. 484) A comptroller is responsible for the acquiring and managing of funds for an organization.
14. (p. 485) Inability to attract and retain qualified employees is one of the most common ways for a firm to fail
financially.
15. (p. 484) Financial managers are responsible for controlling cash flows.
16. (p. 485) Undercapitalization refers to the problem of insufficient start-up funds.
17. (p. 485) Investors and entrepreneurs should have an understanding of financial issues.
18. (p. 484, figure 18.1) Financial managers are responsible for budgeting, auditing, and advising top management on
financial matters.
19. (p. 485, Dealing with Change box) According to the “Dealing with Change” box in Chapter 18, despite a thorough
financial analysis of Goodwill Industries, CEO Michael Miller could not change the dismal financial fortunes of
the company.
20. (p. 485) One of the most common ways for a firm to fail financially is poor control over cash flow.
21. (p. 486) Everyone in business should study finance and accounting.
22. (p. 485) Inadequate control of expenses represents a common financial problem that contributes to business
failures.
23. (p. 484) A comptroller is the chief accounting officer of an organization.
24. (p. 486–487) Tax payments represent a cash inflow to a firm.
25. (p. 487) An internal auditor is responsible for paying the company’s bills and collecting overdue payments
from customers.
26. (p. 486) Financial managers are responsible for buying merchandise on credit and collecting payment from
accounts receivable.
27. (p. 487) Internal audits increase the reliability of a firm’s accounting statements.
28. (p. 484) The business functions of accounting and finance are often in conflict with each other.
29. (p. 484, figure 18.1) Financial managers are involved in tax management and budgeting.
30. (p. 484) Accountants truly represent the financial managers of a business.
31. (p. 484) As a financial manager, Sabrina’s responsibilities include the interpretation of financial statements
provided by the firm’s accountants and the preparation of recommendations to top management.
32. (p. 485) Inadequate expense control typically occurs as a result of undercapitalization.
33. (p. 486) Organizations can avoid financial difficulties by marketing products that generate a significant rate of
growth in sales revenue.
34. (p. 484, figure 18.1) Production scheduling represents one of the responsibilities of financial managers.
35. (p. 485) The importance of financial managers to firms with large cash inflows is greater than for firms with
smaller cash flows.
36. (p. 486) Financial managers are responsible for accounts receivable and accounts payable management.
37. (p. 486–487) Tax management involves the development of strategies to evade tax liabilities.
38. (p. 487) Generally accepted accounting principles require that any assessment of a firm’s financial statements
be performed by independent outside auditors.
39. (p. 487) To be effective, an internal auditor must be critical of any improprieties or deficiencies found in the
financial activities of the firm.
40. (p. 486) Mark works in the department that manages credit and collections at HipBop Music. He is responsible
for accounts receivable and accounts payable. These activities suggest that his job is in financial management.
41. (p. 487) The overall objective of financial planning is to optimize the firm’s profitability and make the best use
of its money.
42. (p. 487, figure 18.2) The first step in financial planning is to develop a budget to better control costs.
43. (p. 487, figure 18.2) One step in the financial planning process is to establish control procedures that allow
managers to monitor the organization’s performance.
44. (p. 488) The timing of a short-term forecast is more important than the forecast’s accuracy.
45. (p. 488) A firm’s short-term financial forecast provides an estimate of sales.
46. (p. 488) The primary focus of a cash flow forecast is the firm’s revenue and costs for the current operating
period.
47. (p. 488) A firm’s most recent financial statements often serve as the basis for predicting future sales, costs and
expenses.
48. (p. 488) A cash flow forecast provides managers with an estimate of the profit potential of different strategic
plans.
49. (p. 488) The long-term financial forecast plays a crucial part in the company’s long-term strategic plan.
50. (p. 488) The long-term financial forecast gives top management some sense of the income or profit potential
possible with different strategic plans.
51. (p. 488) A budget reflects management’s expectations for revenues and allocates the use of specific resources
throughout the firm.
52. (p. 488) Budgets are prepared after the financial forecasts are developed.
53. (p. 488) To be effective, budgets are prepared independently of organizational forecasts.
54. (p. 488) A capital budget highlights the expected funds to be provided by owner investments.
55. (p. 489) An operating budget analyzes the firm’s spending plans for long-lasting assets that require large sums
of money.
56. (p. 488) A capital budget highlights a firm’s spending plans for long-lasting assets, such as property, buildings,
and equipment.
57. (p. 488) A capital budget combines all of the other budgets into one detailed plan used to monitor the
operations of the firm.
58. (p. 489) The operating (master) budget identifies the allocation of funds required to operate a business at a
projected level of revenue.
59. (p. 488–489) A cash budget helps managers anticipate borrowing, debt repayment, operating expenses, and
short-term investment opportunities.
60. (p. 488) The capital budget is the most detailed and most used budget a firm prepares.
61. (p. 489) The main objective of financial control is to establish priorities for the purchase of plant and
equipment.
62. (p. 490) By identifying variances from the financial plan, managers are able to focus on those departments that
require corrective action.
63. (p. 489) Financial control is a process where firms compare actual revenues and costs with budgeted revenues
and costs.
64. (p. 487, figure 18.2) The last step in the financial planning process is to establish financial controls.
65. (p. 488) Since short-term financial forecasts predict expected future events, they should not be influenced by
recent financial statements.
66. (p. 488) A budget’s primary purpose is to provide managers with a financial summary of the past operations of
a firm.
67. (p. 487, figure 18.2) Creating a budget is the first step in a firm’s financial planning and forecasting.
68. (p. 487, figure 18.2) Budgets assist managers in performing the functions of planning and control.
69. (p. 488) Maryland Innovations is planning to purchase a sophisticated supercomputer in the next year that will
cost over $43,000,000. This purchase would be included in Maryland’s capital budget.
70. (p. 488) A company’s capital budget helps management plan for cash shortages or surpluses.
71. (p. 488) As a financial manager of a small firm, Jerry needs to determine how much his company will have to
borrow in the coming months, and when the borrowed funds will be needed. The preparation of cash budget
will help.
72. (p. 489–490) Karen, a financial manager with Bigbux Incorporated, regularly compares actual revenues and
expenses against their projected values. After identifying areas with significant deviations from planned values,
she investigates to find the cause of these variances. Karen’s activities represent the steps involved in the
preparation of Bigbux’s capital budget.
73. (p. 491) Acquiring sufficient funds to meet the operational needs of an organization represents a responsibility
of financial management.
74. (p. 492) Based on the time value of money, $100 received a year from today is worth more than $100 received
today.
75. (p. 492) The concept of the time value of money is based on the interest-earning power of money.
76. (p. 492) Financial managers often recommend that firms pay their bills as late as possible and try to collect
what they are owed as soon as possible.
77. (p. 492) Financial managers generally oppose credit sales because of the impact on cash flows.
78. (p. 492) Effective financial managers evaluate customers’ ability to pay for merchandise purchased on credit.
79. (p. 492) Accepting credit cards, such as MasterCard or Visa, enables a firm to decrease the expense of
extending credit to customers.
80. (p. 492) The costs to a retailer of accepting credit cards are generally greater than the benefits provided.
81. (p. 492) Acquiring and storing inventory represents a sizable expenditure for many businesses.
82. (p. 492–493) To improve cash flow and profitability, effective managers attempt to minimize the firm’s
investment in inventory.
83. (p. 493) Capital expenditures are major investments in long-term assets such as equipment, and trademarks.
84. (p. 493) Sound financial management involves determining the most appropriate sources of funds to meet the
short-term and long-term needs of an organization.
85. (p. 493) Business organizations exclusively use long-term financing for their short-term and long-term needs.
86. (p. 493) While firms finance their long-term needs with debt financing, their short-term needs are provided by
equity financing.
87. (p. 493) Short-term financing refers to borrowed funds that will be repaid in a year or less.
88. (p. 493) Retained earnings represents money acquired from creditors.
89. (p. 493) Equity financing represents money acquired from the operations of the firm or through the sale of
ownership in the company.
90. (p. 493) Equity financing must be repaid.
91. (p. 493) Firms can acquire funds through borrowing, selling ownership, or retaining earnings.
92. (p. 493) One responsibility of the accounting department is to determine the amount and timing of the cash
needs of an organization.
93. (p. 493) Debt financing refers to funds acquired from the profitable operations of a firm or through the sale of
ownership in the firm.
94. (p. 494, figure 18.4) Companies may use long-term funds for new product development.
95. (p. 494, figure 18.4) Expansion into new markets (either domestic or global) is sometimes financed with long-term
funds.
96. (p. 493) Companies raising funds must choose either debt or equity sources, but not both.
97. (p. 492) The time value of a dollar reflects the interest that could be earned by investing that dollar.
98. (p. 492) Efficient cash management requires firms to pay their bills as quickly as possible, and delay the
collection of accounts receivable.