Financial Reporting and Statements Flashcards
6 cards from real Financial Management for Project Managers practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Financial Reporting and Statements flashcards as text
The accounting equation that underpins the balance sheet is:
Answer: Assets = Liabilities + Shareholders' Equity
The fundamental accounting equation (Assets = Liabilities + Equity) ensures the balance sheet always balances, reflecting that all assets are financed by debt or equity.
A project manager sees that operating income is positive but net income is negative on the income statement. The most likely cause is:
Answer: Large interest expense or one-time charges below the operating income line
When operating income is positive but net income is negative, large below-the-line items such as interest expense, debt write-offs, or extraordinary losses are responsible.
Working capital is calculated as:
Answer: Current assets minus current liabilities
Working capital = Current Assets - Current Liabilities, representing the short-term liquidity available to fund day-to-day operations.
Goodwill on the balance sheet arises from:
Answer: The excess paid over fair value in an acquisition
Goodwill is recorded when a company acquires another for more than the fair market value of its identifiable net assets, reflecting brand value, customer relationships, and synergies.
The quick ratio differs from the current ratio in that it:
Answer: Excludes inventory and prepaid expenses from current assets
The quick ratio (acid-test) removes inventory and prepaid expenses from current assets because they are less liquid, giving a more conservative liquidity measure.
Which financial reporting concept requires that expenses be recorded in the same period as the revenues they helped generate?
Answer: Matching principle
The matching principle requires that expenses be recognized in the same accounting period as the revenues they are associated with, ensuring accurate profit measurement.