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Finance 101 Quiz

Quiz yourself using the following questions. Each question is worth 10 points. A link to reveal the answers is at the bottom of the page.

1. What are the 3 key financial statements?

  • Balance Sheet
  • Profit and Loss
  • Cash Flow

2. What are 3 good reasons to have accurate financial statements?

  • They are a reflection of the health of your business
  • You can make better decisions
  • You know if you are profitable, what you owe — status with customers, employees, vendors enables people to trust you

3. What is the trouble in using tax statements to gauge the health of your business?

  • The purpose of tax statements are to report to the government your taxable profit, they are normally used to minimize the appearance of profit.

4. How do you know if your company is solvent?

  • Assets — Liability > is positive (Equity)

5. What does it mean to have a liquidity ratio of 1:1?

  • Current Assets are equal to current liabilities — you have enough between cash, A/R, and inventory to cover the short term claims others have on your company.

6. Give at least 3 examples of fixed assets?

  • Building
  • Equipment
  • Land
  • Vehicles

7. What are liabilities and what are they used for?

  • They are claims other people have against the company, they are used to fund assets.

8. True or False: Cost of Goods is equal to Inventory

  • False — normally the cost of goods should represent purchased products sold vs. all product purchases from vendors.

9. True of False: Assets = Liabilities + Equity

  • True — although most people may look at assets — liability equation to test for solvency.

10. True or False: When your company is making a profit, there is always cash in the bank.

  • False — in order to determine cash in the bank we need to look at an accurate balance sheet or cash flow statement.