All Businesses Are Involved in Three Types of Activity-Financing, Investing

question 10

Multiple Choice

All businesses are involved in three types of activity-financing, investing, and operating. For example, the founder of Tootsie Roll needed financing to start and grow his business. This may have come from either personal savings or outside sources. The cash obtained was then invested in the equipment necessary to run the business, such as mixing equipment and delivery vehicles. Once this equipment was in place, the founder could begin the operating activities of making and selling candy. Paul D. Kimmel, et al., Financial Accounting, 3^rd edition

• A) Argument; conclusion: The cash obtained ... delivery vehicles.
• B) Argument; conclusion: Once this equipment was in place ... selling candy.
• C) Argument; conclusion: The founder of Tootsie Roll ... grow his business.
• D) Argument; conclusion: All businesses are involved ... and operating.
• E) Nonargument.

Grasp the concept of the average collection period and its implications on liquidity and credit policy.

Understand the impact of cash flow management on business survival.

Identify and apply tools and documents used in managing cash flow, such as cash budgets and aging schedules.

Analyze financial statements and ratios to assess business performance against industry standards.

---

Definitions:

Prime Costs

The combined costs of direct materials and direct labor which are directly attributable to the production of goods.

Activity-based Costing

An accounting method that assigns costs to products or services based on the activities and resources used to produce them.

Specialized Electric Motors

Electric motors that are designed and manufactured for specific applications or to meet particular requirements, distinguishing them from standard or generic motors.

Cost Drivers

Factors that cause changes in the cost of an activity or operation, influencing the total expenses.