Business Degree Business Finance 2

Question 1

What is 'depreciation' in financial accounting?

Accepted Answer

The allocation of an asset's cost over its useful life

Answer

Depreciation systematically allocates the cost of a tangible asset over its expected useful life as an accounting expense.

Question 2

What is the debt-to-equity ratio used to assess?

Accepted Answer

The proportion of financing from creditors versus shareholders

Answer

The debt-to-equity ratio compares total liabilities to shareholder equity, indicating how much debt a company uses to finance its assets.

Question 3

What is 'capital budgeting' primarily concerned with?

Accepted Answer

Evaluating long-term investment projects

Answer

Capital budgeting is the process of evaluating and selecting long-term investments that are expected to generate returns over multiple years.

Question 4

Which type of cost does NOT change with the level of production output?

Accepted Answer

Fixed cost

Answer

Fixed costs remain constant regardless of production volume, such as rent, insurance, and salaries for permanent staff.

Question 5

What does 'accounts receivable' represent on a balance sheet?

Accepted Answer

Money owed to the company by customers

Answer

Accounts receivable is money owed to a company by its customers for goods or services already delivered but not yet paid for.

Business Degree Practice Test