Business Services Business Services 4 — Questions and Answers
Question 1: Which financial statement shows a company's revenues and expenses over a specific period of time?
- Balance sheet
- Cash flow statement
- Income statement (P&L) (Correct answer)
- Statement of retained earnings
Correct answer: Income statement (P&L)
The income statement, also called the profit and loss (P&L) statement, summarizes revenues, costs, and expenses during a specific accounting period.
Question 2: What is the main difference between gross profit and net profit?
- Gross profit includes taxes; net profit does not
- Net profit subtracts all operating expenses and taxes from gross profit (Correct answer)
- Gross profit is calculated annually; net profit is calculated monthly
- Net profit excludes cost of goods sold
Correct answer: Net profit subtracts all operating expenses and taxes from gross profit
Gross profit is revenue minus cost of goods sold, while net profit further subtracts all operating expenses, interest, and taxes.
Question 3: A business signs a contract requiring it to provide services for 12 months. Under accrual accounting, when should revenue be recognized?
- All at once when the contract is signed
- When the final payment is received
- Ratably as services are performed each month (Correct answer)
- Only after the contract period ends
Correct answer: Ratably as services are performed each month
Under accrual accounting and ASC 606, revenue is recognized over time as performance obligations are satisfied, not when cash is received.
Question 4: Which type of market research involves collecting new, original data through surveys or interviews?
- Secondary research
- Syndicated research
- Primary research (Correct answer)
- Qualitative desktop research
Correct answer: Primary research
Primary research gathers new data directly from sources through methods like surveys, focus groups, and interviews, unlike secondary research which uses existing data.
Question 5: An LLC operating agreement typically defines all of the following EXCEPT:
- Profit and loss allocation among members
- Management structure and voting rights
- Stock ticker symbol on the NYSE (Correct answer)
- Procedures for adding or removing members
Correct answer: Stock ticker symbol on the NYSE
LLCs do not issue publicly traded stock or have stock tickers; the operating agreement governs internal ownership and management arrangements.
Question 6: What does a business broker primarily help clients do?
- Arrange shipping and logistics contracts
- Buy or sell existing businesses (Correct answer)
- File annual corporate tax returns
- Manage employee benefit programs
Correct answer: Buy or sell existing businesses
Business brokers facilitate the sale or acquisition of small to mid-size businesses, acting as intermediaries between buyers and sellers.
Question 7: Which of the following best describes 'working capital'?
- Total assets minus total liabilities
- Current assets minus current liabilities (Correct answer)
- Revenue minus operating expenses
- Long-term debt divided by equity
Correct answer: Current assets minus current liabilities
Working capital measures short-term liquidity by subtracting current liabilities from current assets, indicating whether a company can meet near-term obligations.
Business Services Business Services 4
Which financial statement shows a company's revenues and expenses over a specific period of time?