42.
A negative cash balance requires an increase in payments and decrease in cash receipts.
43.
When a system of budgets is used for planning and control purposes, it becomes
budgetary control.
44.
Extending credit decreases the potential for sales and losses from bad debts.
45.
Uncollectable accounts receivable can be written off by small businesses to decrease
business income tax liability.
46.
A financial audit of a company consists of a formalized, methodical study, examination,
and/or review of its financial records.
47.
Internal audits furnish the owner(s), creditors, potential and current investors, and
regulatory agencies with information on the company’s financial status and operations.
48.
A company should be audited annually to ensure continued proper financial reporting.
49.
Information on actual operational performance comes through some form of feedback.
50.
Oral reports are the most prevalent type of control used in small firms and provide two-
way communication.
51.
Poor performance in a team can be effectively checked by increasing the number of
employees.
52.
The current ratio shows how easily a company can pay its current obligations.
53.
Return on equity is the ratio of net profit (income) to owners’ equity.
54.
Working capital can be calculated by subtracting current assets from total assets.
55.
If a company turns its inventory over too slowly, it is most likely to be keeping obsolete or
deteriorating goods.
56.
Most small companies like to keep a large amount of long-term debt because the risk is
considerably low.
57.
Indirect taxes must either be added to the price of a firm’s product or shifted backward to
the persons who produced the product because they are part of the cost of doing
business.
58.
Owners of small businesses do not have to pay personal taxes on their salaries and other
ownership-related income they withdraw from the business.
59.
Taxes are not levied on the transfer of ownership of businesses.
60.
Excise tax refers to the tax levied on an individual’s income.
61.
Use taxes are usually imposed on the use, consumption, or storage of goods within a
taxing jurisdiction.
62.
A person’s liability for sales taxes is always limited to the state to which he/she belongs.
Essay Questions
63.
Why is a system of controls necessary in small businesses?
64.
What are the steps involved in the control process?
65.
What are the characteristics of effective control systems?
66.
Describe the different types of budgets. Provide examples for each type.
67.
Describe the process of preparing an operating budget.
68.
Explain the budgetary control process. How are audits used to control the budget of a
company? What are the benefits of auditing?
69.
Define feedback. What forms of feedback can a small business owner obtain to analyze
the actual performance of its operations?
70.
List some of the factors contributing to a firm’s poor performance.
71.
Discuss how taxes affect small businesses.
72.
What is credit management? What is its objective?
