RCS Financial Planning & Budgeting 3 — Questions and Answers
Question 1: A cleaning technician is classified as an independent contractor rather than an employee. What is the primary financial implication for the business owner?
- Owner must pay the contractor's health insurance
- Owner does not withhold payroll taxes for the contractor (Correct answer)
- Owner must provide paid time off
- Owner must pay workers' compensation directly
Correct answer: Owner does not withhold payroll taxes for the contractor
Independent contractors handle their own taxes, so the business owner is not required to withhold income tax, Social Security, or Medicare from their pay.
Question 2: What does the term 'accounts receivable' refer to in a cleaning business context?
- Money owed to suppliers for cleaning products
- Money clients owe the business for services already rendered (Correct answer)
- Monthly fixed expenses like rent and insurance
- Accumulated depreciation on equipment
Correct answer: Money clients owe the business for services already rendered
Accounts receivable represents money that customers owe the business for cleaning services that have already been completed.
Question 3: A cleaning business purchases a commercial vacuum for $1,200 with a 4-year useful life. Using straight-line depreciation, what is the annual depreciation expense?
- $200
- $250
- $300 (Correct answer)
- $400
Correct answer: $300
Straight-line depreciation = $1,200 / 4 years = $300 per year.
Question 4: Which of the following is considered a variable cost for a residential cleaning service?
- Monthly vehicle insurance premium
- Cleaning supply costs per job (Correct answer)
- Annual business license fee
- Office rental payment
Correct answer: Cleaning supply costs per job
Cleaning supply costs change directly with the number of jobs completed, making them a variable cost.
Question 5: A cleaning company offers a 10% discount for clients who prepay for 12 months. This strategy primarily helps the business with:
- Reducing supply costs
- Improving cash flow by receiving payment upfront (Correct answer)
- Lowering insurance premiums
- Decreasing employee turnover
Correct answer: Improving cash flow by receiving payment upfront
Prepayment programs bring cash into the business immediately, improving short-term liquidity and reducing the risk of non-payment.
Question 6: What is the purpose of a profit and loss (P&L) statement review at the end of each quarter?
- To register the business with the state
- To evaluate financial performance and identify cost or revenue trends (Correct answer)
- To file quarterly payroll tax returns
- To update equipment depreciation schedules
Correct answer: To evaluate financial performance and identify cost or revenue trends
A quarterly P&L review allows owners to track whether the business is profitable and spot spending or revenue patterns that need correction.
Question 7: If a cleaning business has total monthly revenue of $8,000 and total expenses of $5,600, what is the net profit percentage?
- 25%
- 28%
- 30% (Correct answer)
- 32%
Correct answer: 30%
Net profit = $8,000 - $5,600 = $2,400; net profit % = $2,400 / $8,000 × 100 = 30%.
RCS Financial Planning & Budgeting 3
A cleaning technician is classified as an independent contractor rather than an employee.
What is the primary financial implication for the business owner?