Business Services Business Services Finance & Accounting 2 — Questions and Answers
Question 1: What does ROI stand for and what does it measure?
- Return on Investment — measures profitability relative to cost (Correct answer)
- Rate of Inflation — measures price increases
- Range of Inventory — measures stock levels
- Risk of Insolvency — measures bankruptcy risk
Correct answer: Return on Investment — measures profitability relative to cost
Return on Investment (ROI) measures the gain or loss generated on an investment relative to its cost, expressed as a percentage.
Question 2: Which term describes the process of ensuring a company's internal records match its bank statement?
- Auditing
- Bank reconciliation (Correct answer)
- Amortization
- Depreciation
Correct answer: Bank reconciliation
Bank reconciliation is the process of matching a company's cash book balances against its bank statement to identify discrepancies.
Question 3: In financial management, what is 'working capital'?
- Total long-term assets minus liabilities
- Current assets minus current liabilities (Correct answer)
- Annual revenue minus total expenses
- Cash on hand plus fixed assets
Correct answer: Current assets minus current liabilities
Working capital equals current assets minus current liabilities and measures a company's short-term liquidity and operational efficiency.
Question 4: What is the role of an internal audit function in business services?
- To prepare external financial statements
- To independently assess compliance, risk management, and internal controls (Correct answer)
- To manage customer relationships
- To negotiate supplier contracts
Correct answer: To independently assess compliance, risk management, and internal controls
Internal audit provides independent assurance that a company's risk management, governance, and internal control processes are adequate.
Question 5: Which financial ratio measures a company's ability to pay short-term obligations?
- Debt-to-equity ratio
- Current ratio (Correct answer)
- Price-to-earnings ratio
- Gross profit margin
Correct answer: Current ratio
The current ratio (current assets divided by current liabilities) measures a company's ability to meet its short-term financial obligations.
Question 6: What does 'accrual accounting' require that cash-basis accounting does not?
- Recording transactions only when cash is received or paid
- Recording revenues and expenses when they are earned or incurred, regardless of cash flow (Correct answer)
- Using only digital payment methods
- Filing taxes quarterly
Correct answer: Recording revenues and expenses when they are earned or incurred, regardless of cash flow
Accrual accounting recognizes revenue when earned and expenses when incurred, providing a more accurate picture of financial performance than cash-basis accounting.
Business Services Business Services Finance & Accounting 2
What does ROI stand for and what does it measure?