fin 2603 final prep
Accounts payable - correct answer-an account due for payment that, in contrast to a note
payable, does not involve the issuing of a formal written promise to the creditor (the two
types of liabilities are shown separately in the balance sheet)
Activity ratios - correct answer-measure the speed at which various accounts are converted
into sales or cash inflows or outflows
Auditor's report - correct answer-a statement that the auditors have audited the annual
financial statements and that these statements fairly represent the financial position of the
firm at the
financial year-end date, as well as the results of the firm's operations for the year under
review and its cash flow information
Average collection period (ACP) - correct answer-a useful means for evaluating credit and
collection
policies; determined by dividing the average daily credit sales into the accounts receivable
balance
Average payment period - correct answer-the period that lapses between buying the
products
and actual payment when firms buy inventory on credit from producers or suppliers;
determined by dividing the average daily credit purchases into the accounts payable balance
Balance sheet - correct answer-part of the financial statements of a firm; indicates the firm's
financial position at a specific point in time, that is, what the assets of the firm are worth (at
book value) and how they were financed by means of equity and debt financing
Benchmarking - correct answer-a type of cross-sectional analysis in which the firm's ratio
values are compared to those of a key competitor or group of competitors, which the firm
wishes to evaluate
capital market - correct answer-a market place where companies and government can raise
long term funds, a market where money is lent for periods longer than 1 year
Cash flow statement - correct answer-part of the financial statements of a f rm; indicates
what cash flows were generated from operating activities, from financing activities and from
investment activities
cost-benefit principle - correct answer-sound financial decision making requires that an
analysis of the total cost and the total benefits be conducted - as far as possible, the benefit
should be greater than the cost of any decision
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